The US rapper's lawsuit could set a precedent for artists distributing their music through digital downloads

Eminem's lawsuit against his label finally went to trial this week after two years, in a case worth hundreds of millions of pounds to artists worldwide.

Eminem's publishing company, FBT Productions, is suing Universal Music Group for $1.6m (£800,000) in alleged unpaid royalties. But what's at stake is not just an unpaid bill – it's the definition of digital royalties.

When a song or ringtone is bought online, at the iTunes Music Store or anywhere else, the artist receives a royalty. The amount of this royalty is governed by a contract between labels and artists. For many artists, however, that digital royalty is not explicitly stated – millions of contracts, after all, predate iTunes and did not anticipate the boom in digital music sales.

Eminem's lawyers argue that downloads should fall under the "licensing" agreements that cover physical releases such as CDs and vinyl records, but Universal Music Group says they are governed by "distribution" arrangements, which have lower royalty rates. Whereas an artist might split licensing royalties 50-50 with their label, under distribution rates they often earn less than 30%.

"If you give the music to a third party without cost to you, like manufacturing or packaging, that's the same as a licensing agreement," a member of Eminem's legal team explained to The Wrap magazine. "[Universal] are characterising it as something else."

FBT Productions's court papers cite numerous instances of the words "licence" and "licensing" in comments by Universal executives and their digital distribution partners.

"Steve Jobs ... discussed his company's relationship with UMG as that of a 'license' in an essay titled 'Thoughts on Music' dated February 6, 2007," the papers read. "Although he consistently referred to Apple 'licensing' music from 'the big four music companies', when deposed in this case he claimed not to know whether his company's relationship with Universal was, in fact, a licence."

The trial is the first major legal test for these issues and the witness list is appropriately star-studded. Although Eminem will not likely attend, UMG founder Jimmy Iovine will probably take the stand and Steve Jobs, CEO at Apple Computers, is scheduled to testify by video.

Relapse, Eminem's first album in five years, is expected early this year.