Pennies Not From Heaven
Aereo settles broadcasters’ claims in bankruptcy

Aereo Inc. has reached a proposed settlement with the broadcasters that have sued it for infringing their copyrighted works.  The settlement would result in payment of $950,000 to the broadcasters in satisfaction of their claims seeking over $99 million – amounting to less than a penny on the dollar.

This development follows lengthy legal proceedings that saw the dispute go all the way to the Supreme Court on the issue whether Aereo was publicly performing the plaintiffs’ television shows, originally broadcast over the air for free, by streaming them to subscribers over the Internet.  Section 106 of the Copyright Act reserves to the copyright owner six exclusive rights, including the right to publicly perform literary, musical, dramatic and motion picture works.  In the so-called “Transmit Clause,” the statute provides that “to perform or display a work ‘publicly’ means … To transmit or otherwise communicate a performance or display of the work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”  17 U.S.C. § 101.  The Transmit Clause was added to the Copyright Act when it was amended in 1976 as a result of two Supreme Court cases:  Fortnightly Corp. v. United Artists Television, Inc. and Teleprompter Corp. v. Columbia Broadcasting System, Inc.  In those cases, the Court had held that community cable systems that retransmitted free, over-the-air broadcast signals did not “perform” the copyrighted works in the broadcasts and did not infringe the copyright owners’ public performance rights.  Congress added the Transmit Clause to the 1976 Act to overturn these decisions.

In Aereo, the defendant offered a service that captured free, over-the-air broadcast television programming and delivered it to subscribers over the Internet.  Aereo did not license the content from the copyright owners.  Its system infrastructure consisted of thousands of dime-sized antennas which captured  the over-the-air broadcasts, converted them into data, and streamed the data to subscribers over the Internet.  Each subscriber was assigned an individual antenna, and each subscriber’s recordings were stored in a subscriber-specific folder on the Aereo server.  Subscribers could store recordings for later viewing, or view them nearly simultaneously via streaming.  The Supreme Court’s opinion addressed only the streaming aspect of the system, and not the storage for later viewing.

Aereo specifically designed its system architecture in this manner to make it comply with the Second Circuit’s decision in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2008) (popularly referred to as the “Cablevision” case).  In that case, cable operator Cablevision offered its subscribers a remote DVR which allowed cable subscribers to record television shows and store the recordings on dedicated spaces of Cablevision’s central servers.  The Second Circuit found that this service did not violate the copyright owners’ public performance rights.  Because the Transmit Clause defines a public performance as a transmission that can be received by the public at different times and places, the Second Circuit interpreted it as turning on the potential audience of the transmission.  In Cablevision, each subscriber made his or her own individual copy of each television program, which was stored in the subscriber’s own dedicated portion of Cablevision’s server.  Since only one individual was capable of receiving each transmission, the Second Circuit concluded that there was no public performance and no infringement.

A group of television studios and other copyright owners sued Aereo, alleging that the service violated their public performance rights notwithstanding Cablevision.  Aereo argued that because its system operated the same way as Cablevision’s remote DVR, it was noninfringing.  In at 6-3 opinion authored by Justice Breyer over a dissent authored by Justice Scalia and joined by Justices Thomas and Alito, the Supreme Court disagreed.  It addressed two distinct questions: (1) whether Aereo “performed” the television programs it distributed to its subscribers; and (2) if so, whether those performances were “to the public.”  The Court answered each question in the affirmative.

The 1976 Act provides that to “perform” an audiovisual work means “to show its images in any sequence or to make the sounds accompanying it audible.”   17 U.S.C. § 101.  The Court compared Aereo’s service to the community cable systems involved in Fortnightly and Teleprompter, and determined that Aereo bears an “overwhelming likeness to the cable companies targeted by the 1976 amendments.”  Aereo, 134 S.Ct. at 2507.  Like those cable companies, “Aereo’s system receives programs that have been released to the public and carries them by private channels to additional viewers.”  Id. (internal quotations and citations omitted).  Viewed in the context of the statutory definition of a “performance,” and the backdrop of the amendments spurred by Fortnightly and Teleprompter, the Court concluded that Aereo “performs” the works that it delivers to its subscribers.

The Court then turned to the question whether Aereo performs the works “publicly.”  The Transmit Clause provides that  an “an entity performs a work publicly when it ‘transmits … a performance … of the work … to the public.’”  17 U.S.C. §101.  And to transmit a performance “is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent.”  Id.  “When an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber.  Aereo thereby ‘communicates’ to the subscriber, by means of a ‘device or process,’ the work’s images and sounds.”  Aereo, 134 S.Ct. at 2508 (internal quotation and citation omitted).  Accordingly, the Court concluded that Aereo “transmits a performance whenever its subscribers watch a program.”  Id.  The one-to-one ratio between antennas and subscribers did not mean that these transmissions were private.  Because the Clause specifically states that “one may transmit a performance to the public ‘whether the members of the public capable of receiving the performance … receive it … at the same time or at different times,’” an entity “may transmit a performance through multiple, discrete transmission . . . through a set of actions.”  Id. at 2509.  Although the statute does not specifically define “the public,” Aereo’s subscribers fall within that category because the Act also states that “an entity performs publicly when it performs at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”  Id. at 2509-10 (internal citation omitted).

The Court thus concluded that Aereo’s streaming service violated the copyright owners’ public performance rights, and remanded the case for further proceedings.  On remand to the district court, Aereo reversed course and took the position that it was a cable operator eligible for a statutory license pursuant to 17 U.S.C. § 111.  The district court rejected this argument.

Aereo then filed for bankruptcy under Chapter 11 of the Bankruptcy Code.  The proposed settlement was reached with the broadcasters in the context of the bankruptcy proceeding, and must be approved by the court.

Pandora’s Box:
Turtles Actions Threaten to Upend Music Streaming Models

Copyright law in the United States is almost exclusively governed by the federal Copyright Act, which preempts equivalent state laws.  As originally drafted, however, the Copyright Act of 1976 – the current iteration of the Act – made an exception for sound recordings fixed before February 15, 1972, leaving those works to be regulated by the states.   State law thus applies to determine the rights and remedies available to the copyright owner of pre-1972 sound recordings.

Flo & Eddie, Inc. owns all rights to the sound recordings created by the “The Turtles,” a 1960s-era band best known for its song “Happy Together.”  Flo & Eddie sued Sirius XM, which operates subscription services that deliver music to listeners via satellite radio and over the Internet, alleging that Sirius had reproduced and publicly performed several of its sound recordings without authorization.  It was undisputed that Sirius did not license the songs.  Because the songs were created before 1972, Flo & Eddie invoked California law to argue that “ownership of a pre-1972 sound recording includes the exclusive right to publicly perform the recording. . .”  Flo & Eddie, 2014 WL 4725382, at *3.

California Civil Code Section 980(a)(2) provides, “The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047 . . .”  The statute does not define what rights are included in “exclusive ownership” of the sound recording.  Accordingly, the court analyzed whether “exclusive ownership” of a sound recording under California law includes the right to publicly perform the sound recording.

The court first examined the plain language of the statute, concluding that “exclusive ownership” means “to possess and control it and not to share that right to possess and control with others.”  Id. at *4.  The statute carved out one narrow exception to the owner’s exclusive rights – such rights did not include the right to make a new recording of the song (a “cover”).  Since the statute listed one exception, the court reasoned, consistent with statutory interpretation, that “other exceptions are not to be implied or presumed.” Id. at *5 (citations omitted).  Thus, “the legislature intended ownership of a sound recording in California to include all rights that can attach to intellectual property, save the singular, expressly-stated exception for making ‘covers’ of a recording.”  Id.

The court then noted that there was no established body of common law in California – indeed, not even a single case – that applied a rule contrary to this interpretation of § 980(a)(2).  And the only two cases to discuss the public performance right under § 980(a)(2) after its enactment either implied or stated in dicta that the statute conferred such a right on sound recording owners.  Accordingly, the court granted summary judgment to Flo & Eddie on its claims that Sirius violated its public performance rights.  It denied Flo & Eddie’s motion with respect to its claims for violation of its reproduction rights due to disputed fact issues.  Sirius moved to certify the denial of summary judgment for interlocutory appeal, but the court denied the motion.  The case is scheduled to go to trial on August 25, 2015.

After the ruling issued, Flo & Eddie swiftly filed a follow-on lawsuit, styled as a class action, against Pandora, asserting similar claims under California law.  Pandora moved to strike the complaint under California’s anti-SLAPP statute, which provides for early dismissal of claims grounded in the defendant’s constitutional right of free speech unless the plaintiff can demonstrate a likelihood that it will prevail on the merits.  Pandora argued that streaming music constitutes protected speech, and the court agreed.  Because the court had previously ruled in Flo & Eddie’s favor in the Sirius XM action, however, it found that Flo & Eddie’s claims were sufficiently meritorious to survive Pandora’s anti-SLAPP motion.  Consequently, it denied the motion.  Pandora has appealed the denial to the Ninth Circuit.

Flo & Eddie has also sued Sirius in New York.  In that case, the district court found in favor of Flo & Eddie under New York common law and granted Sirius’ subsequent motion to certify the decision for interlocutory appeal.  The case is stayed pending the Second Circuit’s decision.

The rulings in favor of Flo & Eddie have generated substantial commentary in the copyright community as causing a major upheaval of previously settled expectations in the music industry.  Professor Tyler Ochoa of Santa Clara University School of Law reportedly characterized the Central District of California’s decision in the Sirius action as “huge, as in 1906-San-Francisco-earthquake huge.  It literally could result in undoing 75 years of copyright.” As two appeals are pending and one action is hurtling towards trial, however, we can be sure that the question is far from settled.  Moreover, as the laws of the 50 states vary in the form and degree of protection afforded to pre-1972 sound recordings, a victory for the recording industry in one or two states does not necessarily translate into a nationwide victory.  Nonetheless, the series of Flo & Eddie disputes creates substantial uncertainty about the future of royalty obligations for public performances of sound records fixed before 1972.

I will be speaking on this issue at the spring meeting of the American Intellectual Property Law Association in Los Angeles on May 2, 2015.  Please join me!

 

Name That MP3Tune:
Denial Ain’t Just a River in Egypt

Breaking: This morning, Judge Pauley of the Southern District of New York issued an opinion granting in part and denying in part (but mostly denying) the defendant’s motion for judgment as a matter of law in Capitol Records v MP3Tunes, in which the jury had found liability for copyright infringement and awarded over $48 million in damages.  The opinion is lengthy and fascinating, especially in its characterization of the parties, and particularly the defendant. This post summarizes the rulings on each issue and sprinkles in some of the court’s more colorful commentary. The entire 42-page opinion is definitely worth a read. In it, the court:

(1) Denied JMOL as to the jury’s finding of vicarious liability, because the evidence showed that the defendant received a financial benefit from the infringing conduct in the form of an expanded user base and additional subscriptions;

(2) Denied JMOL as to the jury’s finding of contributory infringement because the evidence showed the defendant’s constructive knowledge of infringement in a variety of ways;

(3) Denied JMOL as to the jury’s finding of so-called “tertiary liability” – the individual defendant’s secondary liability for the corporation’s secondary liability – and confirming that “tertiary liability” is a cognizable claim;

(4) Denied JMOL as to corporate liability under a theory of respondeat superior because executives seeded the MP3Tunes database with infringing tracks that attracted more users;

(5) Applied Viacom’s “exquisite” objective/subjective standard regarding red-flag knowledge and willful blindness, and granted JMOL as to the jury’s finding of infringement with respect to certain tracks because the defendant had no duty to affirmatively monitor its service under the DMCA;

(6) Denied JMOL as to the jury’s finding of contributory liability for allowing users to play tracks hosted by third-party sites through the user’s browser;

(7) Denied JMOL as to the jury’s finding of direct liability for the unauthorized reproduction of album cover art that MP3Tunes copied from Amazon each time a user uploaded tracks;

(8) Granted JMOL as to the jury’s finding of liability for the public display of cover art, because only one user was capable of viewing each copy of album cover (in so doing, the court declined to apply the Supreme Court’s recent ruling in Aereo because the Supreme Court specifically limited its holding in that case to substantially similar technologies);

(9) Granted JMOL in part as to the jury’s award of statutory damages for the infringement of cover art, holding that the plaintiff can only recover once for cover art and associated sound recording, not twice (because the Copyright Act limits an award of statutory damages to one award for all parts of a compilation);

(10) Denied JMOL as to the jury’s finding of unfair competition with respect to pre-1972 sound recordings (which are not covered by statutory copyright), because the evidence showed that the defendant misled users regarding legality of the service, and controlled the service;

(11) Denied the defendant’s Rule 59 request for a new trial, because the defendant failed to show that the verdict was “egregious or a miscarriage of justice”;

(12) Denied to remit the jury’s statutory damages award (which, depending on the song and theory of recovery at issue, ranged from $10,000 per song to $100,000 per song, and $15,000 per work of cover art), because of the defendant’s willful conduct and the need for deterrence; and

(13) Applied Gore to the jury’s punitive damages award on the plaintiff’s unfair competition claims and reduced the award from $7.5 million to $750,000, because it violated due process (the plaintiffs have the option to accept this reduced award or to retry the issue of punitive damages).

Whew! That’s a lot – but wait, there’s more! The court castigated the parties for what, by all appearances, was a scorched-earth litigation from start to finish. Here are a few choice quotes:

“A primary function of pre-trial litigation is to distill claims. Ultimately, the goal is to make a dispute understandable to a lay person. Despite this Court’s efforts to winnow the issues, the parties insisted on an 82-page verdict sheet on liability and a 331-page verdict sheet on damages that included dense Excel tables, necessitating at least one juror’s use of a magnifying glass. While the jury did its best, their assignment was beyond all reasonable scale.”

“Plaintiffs’ evidence on their most significant theories of liability – red flag knowledge and willful blindness – was sparse. And [defendant] Robertson – by his words, actions, and demeanor – came across as unworthy of belief.”

“This Court observed Robertson’s demeanor on the witness stand. No transcript can capture his whole affect; you really had to be there. In response to Robertson’s counsel’s first question, ‘Could you explain to the jury why you changed your name?’ – Roberson asked for a drink of water and then launched into a 735-word soliloquy . . .

Carried away on his own mystic transport, Robertson was overwhelmed with emotion and needed time to compose himself. Seizing the moment, his counsel posed a follow-up question: ‘Since you’re struggling, Michael, why don’t we move forward a little bit to the relationship between your birth father and your kids?’ Robertson responded with a 186-word finale . . .

This seemingly rehearsed, five-minute fable-like narrative left the jury nonplussed and Plaintiffs’ counsel shell-shocked. It was a dramatic presentation. Even if true, Robertson’s decision to spin this yarn backfired on him. The jury saw it for what it was – a transparent attempt to tug at their heartstrings. Plaintiffs’ counsel failed to appreciate what the jury grasped and reflexively moved for a mistrial claiming unfair prejudice. But Robertson’s manipulative conduct only prejudiced him and that prejudice was not unfair. In denying Plaintiffs’ motion, this Court observed, ‘[j]urors see through performances, and the Oscars are over for this year.’ The jury’s verdict demonstrated that this Court’s observation was spot on.”

Well then.  That’s quite a way to start the week.

The Seventh Circuit Is Not Impressed
Transformativeness? Whatevs

The Seventh Circuit is not impressed with the transformative use doctrine (cue graphics of Judge Easterbrook wearing a McKayla Maroney frown).  The court just issued an opinion giving the back of its hand to transformativeness, acknowledging only that the Supreme Court “mentioned it” in Campbell.  Nonetheless, the court granted summary judgment to the defendant on the ground that its antiauthoritarian poster did not interfere with the market for the plaintiff’s photograph under fair use factor 4.  Kienitz v Sconnie Nation LLC, issued today.

Monkey Shoot, Monkey Speak:
The Monkey Weighs In

I was indescribably relieved upon returning from my summer vacation to discover that we have not yet finished discussing the Monkey Selfie. No bona fide copyright lawyer could possibly want to see an end to this dispute. You can imagine my joy, then, when both the Copyright Office *and* the monkey himself (herself?) recently weighed in on the issue.

The Copyright Office issued a draft of the Compendium of Copyright Office Practices (3rd ed.) on August 19. The Compendium – a monumental undertaking – documents and explains Copyright Office practice and procedure, including with respect to registering claims to copyright. Chapter 300 addresses “Copyrightable Authorship: What Can Be Registered.” At Section 306, the Copyright Office clearly states, “The Office will not register works produced by nature, animals or plants. . . . Examples: A photograph taken by a monkey.”

Bananas! The monkey says. Perhaps counseled by the Cave Man Lawyer (h/t @boothsweet), and apparently having learned English from Cookie Monster, the monkey has his own highly entertaining views on the matter, which you can read here.

So Easy a Monkey Can Do It

To the delight of copyright lawyers everywhere, yesterday the infamous Monkey Selfie debate of 2011 revived itself in the wake of a transparency report issued by Wikimedia revealing that the organization refused a request by photographer David Slater to remove the photo from Wikimedia Commons. Slater traveled to Indonesia in 2011 to photograph macaque monkeys. By Slater’s own account, a monkey grabbed one of his cameras and began snapping photos, including this one . Slater apparently licensed the image for distribution, and later discovered that it had been uploaded to the Wikimedia Commons database. He demanded that Wikimedia remove the image, and the organization refused on the ground that Slater did not create the image himself and therefore does not own copyright in it. Slater’s demand, and Wikimedia’s refusal, came to light when the organization issued its transparency report. Copyright Twitter feeds everywhere immediately lit up like a Christmas tree.

Under U.S. copyright law, the author of a work is the one who created it. In wonky copyright terms, it is the person who fixed an original expression in a tangible medium. Here, Slater has publicly admitted that he did not create the photograph; the monkey. The United States Copyright Office takes the position that only human beings can be “authors.” Animals need not apply. Accordingly, this gives rise to the somewhat unusual situation where there appears to be no author as a matter of law, and thus no copyright ownership.

Of course, U.S. copyright law generally does not apply extraterritorially, and the image in question was created in Indonesia. Although both countries are signatories to the Berne Convention, which requires member nations to give each others’ nationals equal treatment under copyright law, the question of who owns the copyright in the image in the first instance may be governed by Indonesian law.

Slater has reportedly consulted with a U.S. attorney, and is supposedly considering pursuing an infringement action.

Last Call: Orphan Works and Mass Digitization

The Copyright Office is now accepting further public comments on the issue of orphan works and mass digitization. The Office held public meetings earlier this month, which, by various accounts, were heated at times. Interested members of the public wishing to submit comments can find more information and the electronic submission form here. Comments are due by April 14, 2014.

Now Playing:
the Bob & Tom Show!

 

The Copyright Office is hosting an excellent, *free* Copyright Year in Review program on December 4 at 2 p.m. It is open to the public – and did I mention it’s *free*? The panelists are the always knowledeable and witty Bob Clarida and Tom Kjellberg. Bob and Tom have been killing it at the annual Copyright Society meetings for well over a decade (as long as I’ve been in attendance) and their presentation is always a highlight of the meeting. This program is definitely worth your while if you’re going to be in DC on the 4th and would like to brush up on recent copyright developments. Alas, the rest of us will have to wait until next June at the Copyright Society Annual Meeting. Sign up now, thank me later!  http://www.copyright.gov/copyrightmatters/copy_litigation.html