How much do artists make from digital downloads at stores like iTunes? According to Eminem's former producers, not much—perhaps as little as 12 percent of what the label receives, which itself is estimated to be only 70 percent of the purchase price (Apple and other retailers keep the rest for running the digital storefronts).

F.B.T. Productions says that Eminem's label, Universal, was paying out the contractually required 50 percent royalty rate on the revenue from licensing music "to others for their manufacture and sale of records or for any other use." But when the music was sold through digital download stores or as a mastertone, the label only paid a fraction of this amount. That massive discrepancy has fueled F.B.T.'s lawsuit against the label; the case finally went to trial last week after two years of preparation.

F.B.T. is made up of brothers Mark and Jeff Bass. The pair lives in Michigan and did production work on some of Eminem's early work (Eminem is not a party to the current suit). They complain that the 50 percent royalty rate should also have applied to the revenue from iTunes, Buy.com, Napster, Cingular, Sprint, and T-Mobile. In 2007, the Bass brothers filed a lawsuit after a series of letters and a hired accounting firm produced no additional payments from Universal.

"Defendants have failed to comply with the terms of the March 9, 1998 agreement and the 2003 Agreement by failing to account and pay royalties equal to fifty percent (50%) of Defendants' net receipts from the digital uses of the Eminem Masters by the Music Download Providers and Mastertone Providers," says the complaint. "Defendants apply an incorrect formula for calculating royalties with respect to those royalties to be paid to Plaintiffs which results in the payment of approximately twelve percent (12%) of receipts instead of the fifty percent (50%) required by the terms of the agreements."

Actual damages aren't known but are believed to "exceed one million dollars."

Universal's response provides few details about its defense, but media reports shed some light on the case, which turns on the distinction between a "distribution" and a "license." While the distinction may sound merely semantic, the two terms are linked to vastly different royalty rates—in this case, a difference of just over 4x.

What appears to be at issue is whether Universal is simply "distributing" the music to iTunes in the same way that it distributes the CDs it presses to stores like Wal-Mart. Such distributions tend to have a low royalty rate for artists. But when major labels "license" the music to some other entity, they split the extra revenue 50/50 with most artists. So the question really turns to just how much like a regular music store digital retailers are.

At least one distinction might be drawn between the two in terms of the mechanics of distribution. Universal actually ships discs to Wal-Mart; Wal-Mart doesn't get one copy and replicate (and distribute) millions of its own copies. But iTunes and other stores do, possibly making them more like a "licensee" that does its own distributing.

While artists today are generally savvy about the potential of Internet distribution services and take pains to nail down the details in their contracts, older contracts—even from four or five years ago—could be less clear about how revenue from services like iTunes should be split. Should F.B.T. win the current case, it could open the doors for many acts to try squeezing their labels a bit harder over digital distribution royalties.