A Seismic Ruling On Pre-1972 Sound Recordings and State Copyright Law–Flo & Eddie v. Sirius XM Radio (Guest Blog Post)

By Tyler Ochoa

[Eric’s intro: in Tyler’s cover email to me, he told me the ruling was “huge, as in 1906-San-Francisco-earthquake huge.  It literally could result in undoing 75 years of copyright history.”]

A federal court in California has held that a California statute, Civil Code §980(a)(2), protects sound recordings fixed before February 15, 1972 against unauthorized public performance.  The ruling is a victory for Flo & Eddie, Inc., a corporation that owns the rights to sound recordings made in the 1960s by the musical group The Turtles, including the hit song “Happy Together”; and a defeat for Sirius XM Radio, which tried to convince the court that California law only prohibited unauthorized reproduction and sale, and did not extend to public performances.  More generally, it is huge victory for sound recording copyright owners and a big defeat for broadcasters, one that threatens to undo a 75-year-old consensus that state law does not provide a public performance right for sound recordings.

Background

In order to fully understand the importance of the ruling, it is necessary to first understand some background principles of U.S. copyright law.  (Those already intimately familiar with U.S. copyright law may skip ahead.)

First, U.S. copyright law distinguishes between a musical work (the notes and words, in whatever form they occur) and a sound recording (a fixation of sounds, usually a particular recorded performance of a musical work).  The copyright in a musical work is owned initially by the composer and the lyricist (as a work of joint authorship), and is usually assigned to a music publisher.  The copyright in a sound recording is owned in theory by the performer(s) and the sound engineer(s), but in practice it is usually owned by the producer or record label under a work-made-for-hire agreement.  A sound recording is treated as a “derivative work” of a preexisting musical work.  Thus, there are two different copyrights, and two different owners, both fixed in one master tape (a “phonorecord” within the meaning of federal law).

Second, while musical works have been eligible for federal statutory copyright since 1831, sound recordings were not added to the federal copyright act until February 15, 1972.  Before that, under the 1909 Copyright Act (which governs works published or registered before January 1, 1978), the owner of copyright in a musical work had the exclusive right to make so-called “mechanical reproductions” of the musical work, such as phonograph records; but the recordings themselves were not eligible for federal statutory copyright.  That meant that if there was an unauthorized reproduction or broadcast of such a recording, the musical work copyright owner could sue (if the work was still protected by federal copyright law), but the owner of the master recording (the producer or record label) could not recover damages under federal copyright law for such a use.

Third, before sound recordings were added to the federal copyright act in 1972, sound recording copyright owners turned to state law for protection against record piracy (commercial duplication of phonograph records onto cassette tapes for sale).  A few states, like California, protected sound recordings by statute, while others (including New York) protected sound recordings by common-law decisions.  In Goldstein v. California, 412 U.S. 546 (1973), the U.S. Supreme Court held that such state laws were valid and were not preempted by federal law.  Congress ratified this decision in Section 301(c) of the 1976 Copyright Act, which states “With respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this title until February 15, 2067.”  Thus, sound recordings fixed before February 15, 1972, continue to be governed exclusively by state law; while sound recordings fixed on or after February 15, 1972, are governed exclusively by federal law.

Fourth, in the early days of radio, sound recording copyright owners also tried to use state law to restrict unauthorized broadcasts of sound recordings (which, as explained above, were not eligible for federal copyright).  In 1937, in Waring v. WDAS Broadcasting Station, 194 A. 631 (1937), the Pennsylvania Supreme Court held that state common law prevented the unauthorized broadcast of phonograph records (when the legend “Not Licensed for Radio Broadcast” was printed on the records); but in 1940, in RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940), the U.S. Court of Appeals for the Second Circuit, in an opinion by Judge Learned Hand, held that common-law copyright prevented only the duplication of a sound recording, and that sale of phonograph records exhausted any common-law property right to prevent the unauthorized broadcast of the recording (notwithstanding the same restrictive legend).  The Supreme Court denied certiorari, which effectively meant that broadcasters did not have to pay royalties to sound recording copyright owners to play their records on the radio.  (Broadcasters still had to pay royalties to musical work copyright owners, under federal copyright law.)

Fifth, when sound recordings were added to the federal copyright act in 1972, Congress likewise limited the exclusive rights that were provided to sound recording copyright owners.  Authors of most copyrightable works receive five exclusive rights: the right to reproduce the work, to adapt or prepare derivative works based on the work, to publicly distribute copies of the work, to publicly perform the work, and to publicly display the work.  But broadcasters had enough lobbying power to block any action in Congress if it required them to pay more royalties.  As a result, Congress gave sound recording copyright owners only the right to reproduce and distribute copies of the sound recording, and to prepare derivative works (by electronic manipulation of the sounds recorded, not by imitation or simulation).  Congress did not give sound recording copyright owners any right to publicly perform their works.  (The policy argument was that radio airplay served as free advertising for the sale of phonograph records.)

Sixth, in 1995, Congress gave sound recording copyright owners an exclusive right to publicly perform their works “by means of digital audio transmission” only.  There still is no general public performance right for sound recordings in the U.S.  Thus, when your favorite song is played on traditional AM/FM radio (analog transmission), the musical work copyright owner gets paid royalties, but the sound recording copyright owner gets nothing.  But when the same song is played by means of digital audio transmission (such as satellite radio, or Internet radio), both the musical work copyright owner and the sound recording copyright owner get paid.  (Don’t try to make sense of it; it’s strictly a result of historical accident and lobbying power.)  However, Congress provided that FCC-licensed broadcasts were exempt from the digital audio transmission right, and that paid subscription services would receive a compulsory license for public performances of sound recordings by means of digital audio transmission.  That means that the sound recording copyright owners get paid for such performances, but they can’t refuse permission.  Rates for such performances are set by the Copyright Royalty Board, an administrative agency located within the Library of Congress, and are subject to judicial review by the U.S. Court of Appeals for the D.C. Circuit.

The Dispute

The current dispute arises from the fact that sound recording copyright owners are unhappy with the royalty rates that are being paid under the compulsory license for digital audio transmissions under federal copyright law.  Seeking leverage for negotiating increased royalty rates, sound recording copyright owners have argued that the federal compulsory license applies only to sound recordings fixed after February 15, 1972; that under state law, recordings fixed before that date are not subject to any compulsory license, and therefore that public performance rights must be negotiated with the record labels for such performances.  Never mind that sound recording copyright owners have not had any public performance rights in pre-February 15, 1972 sound recordings since the Whiteman decision in 1940 (and still lack any general public performance right in post-February 15, 1972 sound recordings under federal law).  Their argument is that, under the Erie doctrine, the Whiteman decision is merely the prediction of a federal court as to how the state’s highest court would rule on the issue of public performances under state law, meaning that the decision is open to being re-examined on a state-by-state basis, without any deference to the federal court’s interpretation of state law.

Flo & Eddie likely chose to litigate in California because it is one of the few states that has statutory protection for pre-1972 sound recordings.  As amended in 1982, California Civil Code § 980(a)(2) states:

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 sound 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.

Note that this statute tracks federal copyright act in two respects.  First, it is expressly limited to sound recordings fixed before February 15, 1972, so that it avoids preemption under Section 301 of the federal Copyright Act.  Second, like section 114(b) of the federal Copyright Act, it limits the rights of a sound recording copyright owner to reproduction or electronic manipulation of the actual fixed sounds, and does not provide any rights against someone who makes an independent fixation of sounds, even if it imitates or simulates the protected recording (i.e., both federal law and California law provide no rights against a sound-alike recording).  Given the history outlined above, it is certainly possible (indeed, even probable) that the California legislature never even contemplated public performance rights in pre-February 15, 1972 sound recordings, which were generally assumed not to exist at common law after the Supreme Court denied certiorari in the Whiteman case (and, in 1982, did not exist at all under federal law, even for post-Feburary 15, 1972 sound recordings).

The district judge, however, held that the words “exclusive ownership” in the statute should be interpreted to mean that the state-law copyright owner has the right to exclude others from any use of a pre-February 15, 1972 sound recording, including unauthorized public performance.  The court noted that there was one express exception to “exclusive ownership” (namely, independent fixation of other sounds), and inferred that the legislature intended no other exceptions from the “plain meaning” of that phrase.  In response to Sirius XM’s argument that a statute that derogates from the common law should be construed narrowly, the court noted that none of the decisions cited (i.e., the historical decisions described above) involved or purported to interpret California statutory or common law.  The district court therefore granted summary judgment to Flo & Eddie on the ground that unauthorized broadcast of pre-February 15, 1972 sound recordings violates California Civil Code § 980(a)(2).  (The court denied summary judgment with respect to alleged unauthorized reproductions, on the ground that it was unclear whether any of the alleged reproductions, which were incidental to the broadcasts, took place in California.)

The district judge also granted summary judgment to Flo & Eddie for violation of California Unfair Competition law (Bus. & Prof. Code § 17200), a “piggyback” violation which stands or falls with the underlying statutory violation of § 980(a)(2); and for common-law claims of conversion and misappropriation.  Common-law claims of conversion and misappropriation of intangible property are almost always preempted by Section 301(a) of the federal Copyright Act; but again, plaintiffs rely on the express exclusion from preemption in Section 301(c) for pre-February 15, 1972 sound recordings.

Implications

The ruling is a huge victory for sound recording copyright owners, which can use the ruling not only to negotiate higher negotiated rates for public performance of pre-February 15, 1972 sound recordings, but may also use such older recordings as leverage for negotiating higher rates for post-February 15, 1972 sound recordings.  (Such negotiation tactics might be deemed to be copyright misuse, but it is unclear whether state law will recognize this federally-recognized defense.)  Moreover, nothing in the decision limits the state-law violations to public performance by means of digital audio transmission, so the decision gives sound recording copyright owners the general public performance right in pre-February 15, 1972 sound recordings that they have always craved, but that was previously denied to them under federal law (and was assumed not to exist in state law under Whiteman).  That means that traditional AM/FM broadcasters and television broadcasters, who are expressly exempt under federal law with respect to post-February 15, 1972 sound recordings, can expect to be sued next.

Sound recording copyright owners can also use the ruling to go after internet service providers.  Section 512 of the federal Copyright Act provides that internet service providers are not liable for infringements committed by their users, so long as the service provider promptly complies with the “notice-and-takedown” provisions of that section.  But because Section 301(c) states that pre-February 15, 1972 sound recording copyrights are not preempted by the federal act, sound recording copyright owners have been suing internet service providers under state law, arguing that service providers are liable for reproduction and electronic distribution of pre-February 15, 1972 recordings under state law, and that the limitation of liability provided by federal law does not apply.  Existing court decisions so far are split, with the New York Appellate Division holding that Section 512 does not apply to pre-February 15, 1972 sound recordings, because of the express terms of Section 301(c); while the U.S. District Court for the Southern District of New York has held that Section 512 does apply to pre-February 15, 1972 sound recordings, notwithstanding Section 301(c).

The Flo & Eddie ruling will undoubtedly be appealed to the U.S. Court of Appeals for the Ninth Circuit.  It will take some time for that court to render a decision, however.  In the meantime, unless the ruling is stayed pending appeal, one can expect “oldies” recordings to start to disappear from Sirius XM radio, and a pitched battle may be waged in California courts (state and federal) over the use of pre-February 15, 1972 sound recordings by other digital broadcasters and traditional AM/FM and television broadcasters.  It is worth noting, however, that because this issue is governed primarily by state law, the Erie doctrine applies.  In the absence of federal preemption, both the federal district court and the Ninth Circuit can only predict how the state courts would rule on the interpretation of a state statute.  The Ninth Circuit should take advantage of the certification procedure provided for by state law and certify the question to the California Supreme Court, so that a binding interpretation of state law can issue.

When the issue reaches the California Supreme Court, it should take into account the historical context, that public performance rights in sound recordings that were sold to the public have been assumed not to exist under state law for over 75 years.  Interpreting a state statute first enacted in 1872 to provide such rights now, some 75 years later, will wreak havoc with existing commercial practices.  The Register of Copyrights has recommended that Congress bring pre-February 15, 1972 sound recordings under federal law, and she has also recommended that the existing digital audio transmission right for sound recordings should be extended to a general public performance right.  Doing so at the federal level makes sense.  Litigating the existence of a public performance right on a state-by-state basis, when such a right was assumed not to exist for over 75 years, does not.

Case citation: Flo & Eddie Inc. v. Sirius XM Radio Inc., 2:13-cv-05693-PSG-RZ  (C.D. Cal. Sept. 22, 2014).