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A CALIFORNIA FEDERAL DISTRICT COURT'S DECISION IN A CASE AGAINST SIRIUS XM HAS BROADER IMPLICATIONS THAN JUST WHETHER INTERNET RADIO AND SATELLITE SERVICES MUST PAY FOR PRE-1972 SOUND RECORDINGS

By Steve Gordon

The author would like to thank his associate, Anjana Puri, and law intern, Teronse Miller II, for their research assistance.

Federal copyright law applies to sound recordings but only to those produced on or after February 15, 1972. (Sound Recording Act of 1971, Pub. L. No. 140, 85 Stat. 39). Those older recordings are protected by individual states' statutes or common law. A recent spate of lawsuits has raised the issue of whether Pandora's Internet radio service and Sirius XM's satellite service have the right to play sound recordings produced prior to February 15, 1972, without permission from and without paying the owners of the copyrights in those recordings or the artists performing in those recordings. Pandora and Sirius argue that since federal law does not apply to such recordings, the Digital Performance Right in Sound Recordings Act of 1995 (DPRA), which created a right of public performance for sound recording when transmitted digitally, does not apply to pre-1972 recordings and that therefore they do not need permission from the owners of the copyrights in such sound recordings or the artists who performed on them.

Pre-1972 recordings include some of the most commercially successful records of all time, including those featuring the Beatles, the Rolling Stones, Elvis and Sinatra, as well some of the greatest Motown recordings by artists such as Diana Ross and the Supremes, the Temptations, and many others. According to a recent article in Billboard, pre-1972 recordings account for about 5% of plays at Pandora and 15% at Sirius XM ("SoundExchange Launches Campaign for Royalties on Pre-1972 Recordings" by Glenn Peoples, 5/29/14). Therefore, this is an important issue for both Pandora and Sirius. But a federal trial court decision in one of these cases, i.e., Flo & Eddie Inc. v. Sirius XM Radio Inc., et al. (Case No. CV 13-5693 PSG (CD Cal, Sept 22, 2014)), has even broader implications and potential impact than whether these digital streaming services have to pay for pre-1972 recordings. To understand those implications, it's necessary to provide some background.


A Brief History of Copyright and Public Performance Rights for Recorded Music

In 1897 the federal copyright law was amended to protect public performance rights in musical compositions. (http://www.copyright.gov/circs/circ1a.html). This meant that venues at which songs were publicly performed had to acquire licenses to perform musical compositions. There were no such things as sound recordings at the time. In 1914, a group of prominent writers (including Irving Berlin) and their music publishers came together to form the American Society of Composers, Authors and Publishers (ASCAP) to collect royalties from places that played their songs at nightclubs, taverns and bars. Monies generated by the public performance of songs received a major boost when commercial radio emerged in the 1920's. ASCAP started offering its blanket license to radio stations for the right to play any musical composition in its repertoire. However, by the 1930's the radio stations felt they were paying too much money and created a public rights organization (PRO) of their own, Broadcast Music, Inc. (BMI), to compete against ASCAP. Later, another PRO emerged in the U.S. to collect public performance royalties on behalf of contemporary classical composers, SESAC (which originally stood for Society of European Stage Authors and Composers).

In the 1930's through the 1950's, the record business emerged as a significant sector in the U.S. entertainment industry. Led by a myriad of mostly small independent labels such as Sun Records (Elvis Presley), Atlantic (Ray Charles), Stax (Otis Redding) and Mercury (Sarah Vaughan), these labels were led by entrepreneurs who constantly tried to get local radio stations to play their records. Often they would actually offer cash (and other forms of "consideration") to DJs or station managers to play their tracks. The practice was known as "payola." Following hearings exposing these practices in the late 1950's, Congress made it illegal for any radio station to receive consideration for broadcasting particular records unless it disclosed that fact along with the identity of the person furnishing such consideration. (47 U.S.C. § 317 (1960)). Despite the law against payola, as recently as 2005 the record companies have been caught trying to bribe radio stations to play their records. Former New York State Attorney General Eliot Spitzer prosecuted payola-related crimes in New York and settled out of court with Sony BMG Music Entertainment (now Sony Music) in July 2005, Warner Music Group in November 2005 and Universal Music Group in May 2006. The three majors agreed to pay $10 million, $5 million, and $12 million respectively in fines. Spitzer's office found that the companies had used a broad array of illegal "pay for play" tactics to secure airplay for its music, including bribing programmers with laptop computers, luxury hotel stays and even free tickets to Yankee games.

Nonetheless, starting in 1999, as income from recorded music has plummeted, the recording industry, led by the majors, has been lobbying hard to change the federal copyright law to make radio pay them for playing their records. The latest incarnation of this effort was the introduction in September 2013 of the Free Market Royalty Act (HR 3219). Like the earlier failed Performance Rights Act, this Act would require AM/FM broadcasters to pay performers and copyright owners. As hard as record industry has tried however, the broadcasting community, led by the National Association of Broadcasters (NAB), has pushed back by lobbying effectively against a general right of public performance in sound recordings. (However, as discussed below, the record companies were successful in persuading Congress in 1995 to create an exclusive public performance right for digital transmissions of sound recordings).

In 1971, as mentioned above, Congress passed the Sound Recording Act, making any recordings fixed on or after February 15, 1972 subject to the protection of the Copyright Act - but this statute specifically provided that the federal copyright law would not protect public performance rights for sound recordings, thereby allowing broadcasters to continue to pay nothing to the labels. The legislation was basically a compromise between the recording industry, which wanted to create uniform federal protection against physical piracy rather than continue to fight against it in each state, and the broadcast community, which did not feel that it should have to pay the labels for playing their records and thereby promote record sales. Then in 1976 Congress overhauled the old 1909 Copyright Act to conform to international standards, including changing the term of protection from a 28 year term with a renewal term of another 28 years, to 50 years after the death of a creator or 70 years for corporate works (these periods were later extended 20 years each). Once again, however, the broadcast community was able to persuade Congress to maintain the carve-out of public performance rights for sound recordings. The 1976 Act also included another provision that the recording industry did not favor. Congress included a right to terminate grants of copyright after 35 years. The reasoning for this right of termination was that since young creators would often sell or assign their copyrights for little money at the beginning of their careers, they or their families should have the right to recapture those copyrights. Yet if this provision applied to recordings made before the implementation of the Act on January 1, 1978, any record older than 35 years would be subject to possible termination by artists. Therefore, instead of asking Congress to apply the new Copyright Act to records made before 1972, the industry urged that records continue to be protected by state law. Consequently, the Act specifically provided that pre-1972 sound recordings would remain subject to state or common law copyright.

As discussed above, the recording industry has been thus far unsuccessful in trying to obtain public performance rights under federal law, but in 1995 it did manage to obtain exclusive digital public performance rights. The DPRA granted owners of a copyright in sound recordings an exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." The DPRA was enacted because the recording industry was able to persuade Congress that digital technology would threaten its business by allowing people to make perfect copies from digital transmission thus displacing record sales. They only significant opposition was a little company based in Horsham, Pennsylvania, called Music Choice. In the next several years, the Internet started to take off and new services such as AOL and Yahoo! were successful in getting a compulsory license through Congress as part of the Digital Millennium Copyright Act (DMCA) of 1998. This meant that non-interactive digital streaming services could use any recording without permission, provided that they qualified for licenses. The two major qualifications were that the services were non-interactive and that they paid the required royalty rate. Both Sirius XM and Pandora operate under that regime today. They pay SoundExhange, a not-for-profit that collects royalties from statutorily covered services and redistributes the monies to record companies and artists on a 50-50 basis. Yet both Sirius XM and Pandora take the position that they are not legally required to pay for pre-1972 recordings, because neither the DPRA nor DMCA apply to such recordings.

The Current Pre-1972 Cases

There are at the current time six cases questioning Sirius XM or Pandora's position that they do not have to ask for permission or pay for pre-1972 recordings. There are now four lawsuits brought by Flo and Eddie Inc., a corporation created in 1971 that is owned and exclusively controlled by Howard Kaylan and Mark Volman, two of the founding members of the music group "The Turtles." Flo and Eddie Inc. started three lawsuits against Sirius XM in California, Florida and New York, and filed another one earlier this week against Pandora in California. We discuss the recent decision in favor of Flo and Eddie Inc. in California, below. The recording industry lead by Capitol, a wholly owned label of Universal Music, is suing Sirius XM in California and Pandora in New York. All of these suits raise the issue of whether digital music services must ask permission to play pre-1972 recordings. (SoundExchange has also brought a separate suit against Sirius XM, but the issue in that case is not whether Sirius XM can deduct monies for pre-1972 sound recordings but how much it should be allowed to deduct).

The issue presented in these six cases is immensely important because it has implications that go far beyond just whether Pandora and Sirius XM should be paying for pre-1972 records. The reason is that the state law statutes and most of the case law applying to sound recordings predate the digital era. For instance, in both Capitol and Flo and Eddie Inc.'s case against Sirius XM in California, the plaintiffs argue that a 1982 amendment to California's Civil Code provides statutory protection for pre-1972 recordings. Therefore, if this statute is found to protect digital public performances of sound recordings, it would necessarily protect all public performances of sound recordings. Such a finding would implicate many other businesses at which sound recordings are publicly performed (including not only terrestrial radio, broadcast TV and cable), but also any other physical place such as every bar restaurant and nightclub in the United States, as well as any other physical venue that plays music publicly (amusement parks, bowling alleys and stadiums). Indeed, if a court were to rule in favor of the record business in these cases, that decision could radically change the landscape of music licensing in the United States.

Judge Gutierrez's decision

Yet that's exactly what Judge Gutierrez decided in Flo and Eddie Inc.'s lawsuit against Sirius XM in California. The judge declared: "The Court finds that copyright ownership of a sound recording under § 980(a)(2) includes the exclusive right to publicly perform that recording. See Cal. Civ. Code §980(a)(2). Accordingly, the Court GRANTS summary judgment on copyright infringement in violation of §980(a)(2) in favor of Flo & Eddie." Flo & Eddie Inc. v. Sirius XM Radio Inc., et al. (Case No. CV 13-5693 PSG (CD Cal, Sept 22, 2014)).

It's clear that, if upheld, this decision would mean that both Pandora and Sirius XM would have to seek permission and pay for pre-1972 recordings. However, would nightclubs, bars, restaurants as well as radio stations have to seek permission to play and pay performance royalties for pre-1972 records? On its face, yes. The judge based his ruling on the wording of the statute which reads in relevant part: "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." Cal. Civ. Code § 980(a)(2). Judge Gutierrez emphasized that there is nothing in the statutory language what would preclude performance rights in pre-1972 sound recordings. He wrote in relevant part: "...the Court infers that the legislature did not intend to further limit ownership rights, otherwise it would have indicated that intent explicitly."

Judge Gutierrez concluded: "that copyright ownership of a sound recording under § 980(a)(2) includes the exclusive right to publicly perform that recording." This interpretation of California law would make the exclusive right of public performance in sound recordings apply to any public performance of a pre-1972 recording, whether on a digital service or otherwise, including performances in terrestrial radio or television broadcasts, nightclubs, restaurants, bars and any other public places. In other words, they would all have to seek permission from the copyright owner of each pre-1972 recording - usually the record company. (Unlike the Turtles, most commercially successful artists do not retain rights in their records). The owners of such recordings could then charge any amount they wished, or deny permission altogether.

On October 6th, Sirius XM announced that it would appeal Judge Gutierrez's ruling. In the meantime, all the other lawsuits against it and Pandora are ongoing.

The RESPECT Act

In May 2014, proposed legislation favored by the major labels titled "Respecting Senior Performers as Essential Cultural Treasures" or the RESPECT Act, was introduced into the House of Representatives. The bill proposes an amendment to the federal copyright law that would specifically require non-interactive digital radio services to pay royalties for pre-1972 recordings "in the same manner as they pay royalties for sound recordings protected by federal copyright that are fixed after such date." This would mean that services that are currently paying SoundExchange to play post-1972 recordings, including Sirius XM and Pandora and other smaller Internet radio stations, such as Songza and iHeart Radio, would have to pay SoundExchange to play pre-1972 recordings. That money would then flow to the labels and the artists on 50-50 basis after SoundExchange took a modest administrative fee.

The RESPECT Act would also provide a remedy under which performance royalties for the transmission of such recordings may be recovered in a civil action in federal court if a digital music service failed to make such payments. However, it would prohibit an infringement action against a transmitting entity from being brought under a state law if the appropriate royalty was paid under this Act, thus prohibiting lawsuits such as the current ones against Sirius XM and Pandora.

Finally, the RESPECT Act would not confer federal copyright protection to pre-1972 recordings, which would continue to be protected under applicable state laws notwithstanding the payment of royalties under federal statutory licensing requirements. Thus, the termination right would not be available for pre-1972 recordings.

Possible Outcomes and Conclusion

If Judge Gutierrez's decision is upheld on appeal, it is possible to imagine a plethora of lawsuits against radio and TV stations subject to California law, as well as bars, restaurants and other venues for playing pre-1972 sound recordings without permission. For this reason, followers of "judicial realism" may reasonably speculate that the Ninth Circuit will find a way to disagree with the district court's statutory construction.

In a 2011 report, the Copyright Office opined that pre-1972 sound recordings should be federalized except that the termination provisions of the Copyright Act should not apply. This opinion is in basic agreement with the RESPECT Act - both would require Internet radio to pay for pre-1972 sound recordings while avoiding the termination provisions of the 1976 Act.

If the RESPECT Act is passed, the need for any lawsuits against Pandora and Sirius XM would be eliminated. Further, since the RESPECT Act states that digital services would pay royalties for pre-1972 recordings "in the same manner" as they pay royalties for later recordings, SoundExchange would receive those monies and this would mean that 50% would go directly to the artists. That would be a good thing.


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This page contains a single entry from the blog posted on October 8, 2014 10:07 AM.

The previous post in this blog was Kirby/Marvel Settle - Law Surrounding "Work for Hire" Remains Unsettled.

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