From “Happy Together” to “Eve of Destruction”
Turtles Seek to Upend Streaming Business Models for Pre-1972 Sound Recordings

On Friday I had the privilege of speaking at the AIPLA Spring Meeting in Los Angeles on the subject of pre-1972 sound recordings and the current series of lawsuits brought by the successors of the Turtles against Sirius XM regarding royalties over pre-1972 sound recordings.  Copyright law in the United States is almost exclusively governed by the federal Copyright Act, which preempts equivalent state laws.   As originally drafted, however, federal copyright law did not extend copyright protection to sound recordings, leaving those works to be regulated by the states.  Congress amended the copyright law in 1972 to add federal protection for sound recordings, but it granted this protection on a prospective basis only.  Sound recordings fixed before February 15, 1972 thus remain subject to state law. A series of lawsuits brought by Flo & Eddie, Inc. (“Flo & Eddie”), the entity that owns the copyrights for sound recordings created by the 1960s rock group the Turtles, is upending rules thought long established regarding performance rights of pre-1972 sound recordings under state law.

The Quirky History of Sound Recording Copyright

The Copyright Act defines a sound recording as a work that “results from the fixation of a series of musical, spoken or other sounds … regardless of the material objects, such as disks, tapes or other phonorecords, in which they are embodied.”  Copyright law treats a sound recording as a separate work from the underlying musical composition – the musical notes (and sometimes words) that comprise the song.  One can think of a musical composition as the sheet music in which the song is notated, whereas the sound recording is the CD, MP3 or other recording in which the song is performed.  As separate works, the sound recording and composition correspondingly have separate copyrights, which are typically owned separately.  The copyright in the composition is usually owned by the composer, or jointly by the composer and lyricist if the song includes words.  The copyright in the sound recording is typically owned by the producer or record company that produces the recording.

Although federal copyright law protection was extended to sound recordings fixed on or after February 15, 1972, the rights granted to sound recording owners were more limited than those granted to owners of other categories of copyrighted works.  The owners of musical compositions (along with the owners of literary, dramatic, choreographic, pantomime, and motion picture works) have the exclusive right “to perform the copyrighted work publicly.”  Sound recording owners, by contrast, were not initially granted any public performance rights.  Thus, when songs were played on the radio, composers were paid for the performances, while sound recording owners received no compensation for air play of the very same songs.  The rationale for treating composition owners and sound recording owners differently was that sound recording owners received “compensation” in the form of “free advertising” when their recordings were aired on the radio.  This compensation scheme continues to exist today, and is the subject of vigorous criticism by the recording industry and artists.

In 1995, Congress further amended the Copyright Act to give sound recording owners the right “to perform the copyrighted work publicly by means of digital audio transmission.”  Under current federal law, then, sound recording copyright owners are paid for performances of their works over digital streaming services like Pandora and Sirius XM, but not for performances of those same works over “terrestrial” (AM/FM over-the-air) radio.

This quirky federal scheme left open the question what rights inhered in sound recordings under state laws governing works fixed before February 15, 1972.  For more than seven decades, industry participants thought they knew the answer.  The Pennsylvania Supreme Court was the first state high court to address the issue whether state law granted sound recording owners a public performance right in Waring v. WDAS Broadcasting Station.  In that case, the owner of sound recordings sued to enjoin a radio station from broadcasting the recordings.  The sound recordings had been stamped with the legend, “Not Licensed for Radio Broadcast.”

The court first analyzed whether a “performer’s interpretation of a musical composition constitute[s] a product of such novel and artistic creation as to invest him with a property right therein.”  It concluded that if a performer “contributes by his interpretation [of a composition] something of novel intellectual or artistic value,” the performer has a property right in the performance.

The court then turned to the question whether the sale of the recordings to the public constituted a “publication” that divested the copyright owner of its common-law rights.  Under the copyright law in effect at that time, unpublished works were protected by state common law, and became eligible for federal copyright protection upon publication if the author complied with certain formalities in the Copyright Act.  Because compliance with formalities was tricky and operated as a “gotcha” for many authors, threatening to inject their works into the public domain when the authors had intended no such thing, a robust (if confusing) body of decisional law had developed making a distinction between a “general” publication, which would divest a work of state common law protection, and a “limited” publication, which would not.  Although the court danced around this issue, it noted that a general publication typically occurred only where there was a sufficient dissemination of copies to the public to indicate an intent by the author to donate the work to the public, where as dissemination to a limited number of recipients, under restrictions or conditions against further distribution, would be a limited publication.  The court cited a number of cases holding that a variety of types of performances did not constitute a general publication, such as the production of a play, a performance over the radio, and a live lecture.

The court then concluded that the “not licensed for radio broadcast” restriction

was not unreasonable, nor did it operate in restraint of trade.  It was intended to effect a legitimate purpose; indeed, unless such a restriction can be imposed and enforced, it will be impossible for distinguished musicians to commit their renditions to phonograph records – except possibly for a prohibitive financial compensation – without subjecting themselves to the disadvantages and losses which they would inevitably suffer from the use of the records for broadcasting.  Such a restriction, then works for the encouragement of art and artists.

In so holding, the court distinguished the United States Supreme Court’s earlier decision in Bobbs-Merrill Co. v. Straus, in which the Supreme Court had invalidated a book publisher’s attempt to restrict the downstream resale price of its books to no less than $1.  The Supreme Court held that the book publisher’s right to reproduce and distribute its book was extinguished once the book was sold, and the publisher had no right to place further downstream restrictions on its sale.  The Pennsylvania Supreme Court reasoned that Bobbs-Merrill and similar cases rested “upon the fact that the attempted restrictions, being in restraint of trade, were against public policy …”  Thus motivated by public policy reasons, fairness to artists and a desire to incentivize creativity, the court concluded that a sound recording owner’s rights were not extinguished when the sound recordings were sold to the public, and that the owner could restrict their public performance.

Three years later, the Second Circuit reached the opposite conclusion in RCA Mfg. Co., Inc. v. Whiteman in an opinion authored by Judge Learned Hand.  The facts were virtually identical to those in the Waring case: the owner of sound recordings had distributed the recordings bearing the legend “Not licensed for radio broadcast,” and sued to prevent their performance on the radio.  Relying in part on Bobbs-Merrill, and explicitly disagreeing with Waring, the Second Circuit held that the “’common-law property’ in these performances ended with the sale of the records and that the restriction did not save it; and that if it did, the records themselves could not be clogged with a servitude.”

Unhappy Together: Flo & Eddie Goes on the Warpath

For the next 75 years, the issue of public performance rights under state law lay dormant.   Sound recordings fixed on or after February 15, 1972 were afforded federal copyright protection, but owners enjoyed only a limited public performance right for digital audio transmissions.  As satellite and Internet streaming services such as Sirius XM (“Sirius”) and Pandora were created and grew, they paid no royalties or license fees to the owners of pre-1972 sound recordings for the privilege of performing their works.  Then, in 2013, Flo & Eddie filed three lawsuits against Sirius in California, New York and Florida, alleging that Sirius’ streaming of Flo & Eddie sound recordings without permission or payment violated Flo & Eddie’s state law public performance rights.  Summary judgment motions were filed in each of the cases.  The California and New York courts have ruled in Flo & Eddie’s favor, while the Florida motion remains pending and is scheduled to be argued April 28, 2015.  Following its summary judgment victory in the California case, Flo & Eddie filed a virtually identical suit against Pandora in  California.

The California Action Against Sirius

Flo & Eddie’s California action against Sirius is based principally on two statutes: California Civil Code § 980(a)(2), which explicitly governs pre-1972 sound recordings, and California Business & Professions Code § 17200, which addresses unfair competition.  The complaint also states claims for conversion and misappropriation under state law.

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, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.

The statute does not define what rights are included in “exclusive ownership” of the sound recording.  Accordingly, the court began its summary judgment analysis by considering 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.”  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.”  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.”

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.

Within days of this ruling, Flo & Eddie filed a new action in California against Pandora, styled as a class action, asserting similar claims.  The action against Sirius is ongoing.  The court denied a motion by Sirius to certify the denial of summary judgment for interlocutory appeal.  Flo & Eddie has moved for class certification, and the case is currently scheduled to go to trial on August 25, 2015.

The New York Action Against Sirius

Flo & Eddie’s New York action against Sirius is grounded in state common law.  The parties did not dispute that New York common law provides sound recording owners with the exclusive right to reproduce the recordings.  Whether those common-law rights extend to public performance, however, was a question of first impression.

The court noted that as a general matter, common law “typically protects against unauthorized reproduction of copies or phonorecords, unauthorized distribution by publishing or vending, and unauthorized performances.”  New York common law historically recognized public performance rights in other types of works, such as plays and films.  Sirius argued that such rights could not exist under New York law because no case had ever addressed them.  The court rejected this reasoning, however, finding that the fact that the issue had never been addressed before did not mean that the right in question did not exist.  Indeed, in 2005, the New York Court of Appeals had held, as a matter of first impression, that New York common law protected certain pre-1972 sound recordings even though those recordings were in the public domain in their country of origin (the United Kingdom).

The very fact that Naxos was decided in favor of the common law copyright holder, after more than a century of judicial silence, means that this court can infer nothing – certainly not that the common law copyright in sound recordings does not encompass all of the rights traditionally accorded to copyright holders in other works, including the right of public performance – from the fact that this is the first case to raise the issue.

The court acknowledged that this lack of case law “confirms that not paying royalties for public performances of sound recordings was an accepted fact of life in the broadcasting industry for the last century.”  This, however, showed not that copyright owners “lacked an enforceable right under the common law – only that they failed to act on it.”  The court concluded that “the issue was just not on anyone’s radar screen until Congress granted a public performance right in more recent sound recordings.”

Instead, the court reasoned, “years of judicial silence implies exactly the opposite of what Sirius contends . . . that common law copyright in sound recordings comes with the entire bundle of rights that holders of copyright in other works enjoy.”  Moreover, current federal copyright law suggests that any limitation on the “bundle of rights appurtenant to copyright” must be explicitly spelled out.  In the Copyright Act of 1976, Congress expressly limited the public performance rights of sound recording owners to digital audio transmission, suggesting that otherwise they would have “enjoyed the entire bundle of rights traditionally granted to copyright holders – including the right to public performance …”

The court also rejected the public policy argument that granting a “new” right to pre-1972 sound recording owners does not incentivize creativity, as required by the Copyright Clause in the Constitution.  In Naxos, the New York Court of Appeals had found that New York common law protected sound recordings that were already in the public domain in their country of origin.  Thus, the court concluded that “New York does not protect common law copyrights only when that protection creates incentives for new similar works.”  Indeed, the court found that recognizing a public performance right in pre-1972 sound recordings would further public policy by harmonizing New York’s common law of copyright with the federal Copyright Act.

Accordingly, the court denied Sirius’ motion for summary judgment.  Sirius then moved for reconsideration.  In its reconsideration motion, it cited, for the first time, the Second Circuit’s Whiteman opinion, and argued that that opinion established that sound recording owners had a common-law publication right.  In a sharply worded opinion, the court rejected this argument, emphasizing:

The exact holding of Whiteman was this: ‘[W]e think that the ‘common-law property’ in these performances ended with the sale of the records and that the restriction [not for broadcast on the radio] did not save it.’  All of the reasoning in Whiteman addressed that issue – whether RCA had ‘published’ its sound recordings by selling them to the public, thereby losing all its common-law rights under then-applicable law.  The Second Circuit did not decide what those rights might have been, let alone specifically address whether those lost rights included an exclusive right to publicly perform the sound recordings.

Indeed, had Whiteman been predicated on the absence of a public performance right in sound recordings, the entire discussion of whether RCA’s common law rights were divested by publication would have been superfluous; RCA could not possibly have ‘lost’ via publication a right that never existed in the first place!  That the Second Circuit felt the need to reach the publication issue actually suggests that it assumed the existence of a public performance right in the context of common law copyright.

Following denial of reconsideration, Sirius sought certification of the decision for an interlocutory appeal, which the court granted on February 15, 2015.  The case is stayed pending a decision by the Second Circuit.

The California Action Against Pandora

Within days of the California court’s grant of summary judgment to Flo & Eddie in the case against Sirius, Flo & Eddie filed suit against Pandora asserting substantially the same claims.  Pandora immediately attacked the complaint by filing an anti-SLAPP motion pursuant to California Code of Civil Procedure §425.16, which allows a defendant to file a special motion to strike a complaint that based upon certain types of protected speech.

Under §425.16, the court engages in a two-step analysis.  First, it examines whether the plaintiff’s cause of action arises from protected activity.  Second, it considers whether there is a probability that the plaintiff will prevail on its claim.  Protected activity constitutes one of four types of speech:

(1) any written or oral statement … made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law;

(2) any written or oral statement … made in connection with an issue under consideration or review by a governmental body, or any other official proceeding authorized by law;

(3) any written or oral statement … made in a public [place or] forum in connection with an issue of public interest; or

(4) any other conduct in furtherance of the exercise of the constitutional right of petition or free speech in connection with a public issue or topic of public interest.

Pandora argued that its music streaming activities were “protected activity” because they constituted “conduct in furtherance of the exercise of the constitutional right … of free speech in connection with a public issue or an issue of public interest.”  Thus, it bore the burden of proving both that streaming was in furtherance of its free speech rights, and that the streaming was in connection with a public issue or an issue of public interest.

Streaming music is protected speech, Pandora contended, because music is expressive and protected by the First Amendment, not only when expressed by authors but also when disseminated by third parties.  Flo & Eddie countered that since the First Amendment does not protect infringement, Pandora’s activities were not in furtherance of its free speech rights.  The court found that assessing the lawfulness of Pandora’s conduct in determining whether that conduct was in furtherance of its free speech rights would inappropriately conflate the two prongs of the anti-SLAPP inquiry, since doing so would necessarily require consideration of the likelihood that Flo & Eddie would prevail.  The court thus concluded that Pandora had established that its conduct was in furtherance of its free speech rights.

The court then turned to the question whether Flo & Eddie had demonstrated a probability that it would prevail on the merits.  The court first noted that it had ruled in Flo & Eddie’s favor in the earlier case against Sirius, and reaffirmed its holding in that case.

Pandora argued that Flo & Eddie could not prevail despite the ruling in the case against Sirius, because Cal. Civ. Code §980(a)(2), which formed the basis of the court’s opinion in that case, did not apply to Flo & Eddie’s sound recordings.  Section 980(a)(2) in its present form was not enacted until 1982, well after the Turtles released the sound recordings at issue in the 1960s.  Section 980(a)(2) replaced earlier §§ 980 and 983, which provided, respectively:

The author or proprietor of any composition in letters or art has an exclusive ownership in the representation or expression thereof as against all persons except one who originally and independently creates the same or a similar composition.

If the owner of a composition in letters or art publishes it the same may be used in any manner by any person, without responsibility to the owner insofar as the law of this State is concerned.

Thus, under prior law, the owner of a “composition in letters or art” owned the work until publication occurred, after which the work was no longer protected by state statutory law.  Publication triggered eligibility for federal copyright protection, however, sound recordings were not eligible for such protection before 1972.  Pandora contended that, as a consequence, once the Turtles distributed their sound recordings to the public, those sound recordings were no longer protected by state law and ineligible for federal protection, thus injecting them into the public domain.

The California legislature enacted §980(a)(2) to exclude copyrightable subject matter governed by the federal Copyright Act of 1976 – works of authorship fixed in a tangible medium of expression, and sound recordings fixed after February 15, 1972.  Pandora argued that the legislature did not thereby “resurrect” sound recording copyrights that had been extinguished under prior §§ 980 and 983.  The legislative history, however, indicated that California intended to maintain rights that previously existed, and case law demonstrated that California common law had always protected sound recordings even after publication.  In Lone Ranger Television, Inc. v. Program Radio Corp., for example, the Ninth Circuit held that the plaintiff retained “an intangible property interest” in tapes of radio broadcasts even after the broadcasts were published, despite §§980 and 983, and found the defendant liable for conversion of the tapes.

Accordingly, although Flo & Eddie’s complaint was based on Pandora’s protected activity, Flo & Eddie demonstrated that the claims were sufficiently meritorious to survive Pandora’s anti-SLAPP motion, and the court denied the motion.  Pandora has appealed the decision, and its opening brief is due on August 3, 2015.

The Florida Action Against Sirius

A motion for summary judgment is fully briefed, was argued last week and is awaiting decision in the Florida action against Sirius.

Conclusion

The Central District of California’s ruling in favor of Flo & Eddie generated substantial commentary in the copyright community as causing a major upheaval of previously settled expectations in the music industry.  The New York action against Sirius and the California action against Pandora have both been appealed, while the California action against Sirius is hurtling towards trial and the Florida action is awaiting a summary judgment ruling.  With so many moving parts, we can be sure that although certain battles have been decided, the larger war is far from over.  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 Flo & Eddie in one or two states does not necessarily translate into a nationwide victory for the entire recording industry.  Nonetheless, the pendency of these actions creates substantial uncertainty about the future of royalty obligations for public performances of sound records fixed before 1972.

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