The late pianist, bandleader and composer wrote "It Don't Mean a Thing" and other big band hits. He signed the 1961 deal with Mills Music, predecessor of EMI, now part of global Sony/ATV Music Publishing.
The standard songwriter royalty contract specified an even split of net revenues between the publisher and Ellington. EMI presently deducts 50 per cent commissions to foreign subpublishers that are now company affiliates before splitting the rest with Ellington's heirs.
His grandson Paul Ellington sued in 2010, alleging breach of contract.
Judge Sheila Abdus-Salaam wrote that "globalization of the music industry has rendered this 'net receipts' arrangement much more favourable to music publishers than to artists." But, she added, "we must examine the parties' intentions based on the plain language within the four corners of the agreement."
Richard Scarola, an attorney representing Paul Ellington, said hundreds of thousands of dollars were at stake, and potentially millions on behalf of many artists from the same period.
The Court of Appeals split 5-2 Thursday in concluding the 1961 contract language was "unambiguous," binding only Mills and "any other affiliate" at the time.
The term was intended to apply only to those affiliates then in existence because it contained no "forward-looking language," Abdus-Salaam wrote. Judges Victoria Graffeo, Susan Read and Eugene Pigott Jr. agreed with her.
She noted that music industry contracts now usually employ "at source" formulas where the artist collects royalties based on a percentage of income determined before licensing fees are deducted.
In a concurring opinion, Judge Robert Smith disagreed that the contract applied only to old affiliates, which thereby invites publishers to create new affiliates to get around old contract terms. However, he said EMI provided Ellington's heirs semi-annual royalty statements since at least 1994 that clearly disclosed payments to affiliated subpublishers, with no record of complaints until 2008.
In her dissent, Judge Jenny Rivera wrote that the contract is "unclear and contradictory," and its use of the term affiliate is ambiguous. She and Chief Judge Jonathan Lippman would reinstate the lawsuit, saying that question should be answered at trial.
Scarola said Thursday he and Ellington are disappointed, but the decision doesn't foreclose challenges to the industry practice of a single enterprise taking 75 per cent of artist royalties for itself based on breaches of good faith and fair dealing.
Sony/ATV Music Publishing said it was grateful the courts found the company faithfully honoured the terms of the 1961 agreement and that the use of affiliated subpublishers "has never diminished either the share of income or amount of income paid or payable to Duke Ellington or his heirs."