A Seismic Ruling Revisited: No Common-Law Public Performance Rights in Pre-1972 Sound Recordings in New York–Flo & Eddie v. Sirius
By Guest Blogger Tyler Ochoa
On December 20, 2016, the New York Court of Appeals (the highest court in the State of New York) held 4-2 (with one judge recused) that “New York common-law copyright does not recognize a right of public performance for creators of sound recordings.” Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. 16-172, at pp. 1-2 (emphasis added). The decision dashed Flo & Eddie’s hopes for a decisive court victory that would likely have required various broadcasters, including Sirius XM, to shell out lots of money to the owners of state-law copyrights in sound recordings fixed before February 15, 1972. The wave of litigation concerning state-law public performance rights in pre-1972 sound recordings is not at an end (Flo & Eddie still have cases pending in California and Florida, and other sound-recording copyright owners have filed suits in other states), but the failure of the litigation in New York likely will influence other states to follow New York’s lead.
Background: How We Got Here
I have written about the issue of state-law public performance rights for pre-1972 sound recordings before. That post explains a lot of background about U.S. copyright law, including the distinction between musical works and sound recordings, and why February 15, 1972 is the dividing line between state and federal protection for sound recordings. Familiarity with that background is assumed here.
At that time (October 1, 2014), the wave of litigation over this issue was still in its early stages, and Flo & Eddie (the corporation that owns rights in sound recordings made by the band “The Turtles,” including their hit recording “Happy Together”) had just achieved its first victory against Sirius XM Radio, in a federal district court in California, on the grounds that a California statute (Civil Code § 980(a)(2)) provides public performance rights in pre-1972 sound recordings in California. Since then, Flo & Eddie also found success in federal district court in New York, under New York common law, 62 F. Supp. 3d 625 (S.D.N.Y. 2014), but lost a similar case in federal district court in Florida, under Florida law. The federal district court in New York certified the case for an interlocutory appeal to the U.S. Court of Appeals for the Second Circuit; and the Second Circuit, in turn, certified the state-law question of whether New York recognizes public performance rights in pre-1972 sound recordings to the New York Court of Appeals. 821 F.3d 265 (2d Cir. 2016). The Florida case was appealed to the U.S. Court of Appeals for the Eleventh Circuit, which likewise certified the question of state-law public performance rights under Florida law to the Florida Supreme Court. 827 F.3d 1016 (11th Cir. 2016).
Meanwhile, in June 2015, Sirius XM Radio hedged its bets by settling a companion lawsuit brought by the five major record labels, allowing Sirius XM to play all of the recordings controlled by those companies (some 80% of Sirius XM’s playlist) in exchange for $210 million in royalties. That deal remains in place for four years (through the end of 2017). A class action of other sound-recording owners was certified in the original Flo & Eddie case, and a trial was scheduled to determine the amount of damages due for use of pre-1972 sound recordings in California. The parties entered into a partial settlement in November 2016, with Sirius XM agreeing to pay as much as $99 million in damages to the class, contingent on the outcome of its appeals on the merits in all three cases. If Flo & Eddie won the appeals on the merits in all three states (California, New York, & Florida), the class would receive $99 million; if it won some and lost others, the amount would be adjusted downward accordingly; and if Sirius XM wins on the merits in all three states, it will owe nothing. Another case, however, brought by Flo & Eddie against Pandora is already pending in the U.S. Court of Appeals for the Ninth Circuit. Oral argument in the Ninth Circuit was held earlier this month, and it is likely that the case will result in certified questions to the California Supreme Court. Numerous similar cases against other broadcasters are pending in these and other states.
(In the interests of full disclosure: I authored amicus briefs in each of these actions, at both the federal and state levels, on behalf of a group of Copyright and Intellectual Property Law Professors, supporting the position of Sirius XM and other broadcasters. Those briefs argued that 1) for 75 years, it has been considered settled law that there is no public performance right in sound recordings under state law; 2) when testifying before Congress during that time, proponents of such a right consistently testified under oath that record companies did not have a public performance right in sound recordings under either federal or state law; 3) unlike an action for record piracy, applying a public performance right in sound recordings to broadcasters outside the state would violate the Dormant Commerce Clause, because broadcast signals cannot be confined to the boundaries of a state; and 4) if any change is to be made to the status quo, it should be made by Congress, on a nationwide basis, rather than on a piecemeal basis in individual states.)
The New York Court of Appeals Ruling
The ruling by the New York Court of Appeals is the first decision on this issue by the highest court of any state since 1940. The majority began by reviewing federal copyright law, noting the lack of a general public performance right for sound recordings from the time that they were first added to the federal copyright act (February 15, 1972) to today. In 1995, Congress made an exception and recognized a limited public performance right in post-1972 sound recordings, by means of digital audio transmission only, subject to an exemption for FCC-licensed broadcasts, and a compulsory license for other non-interactive broadcasters (including most webcasters). (This ridiculously complex statute can be found at 17 U.S.C. § 114.)
The court then surveyed New York case law on common-law copyright, beginning with Palmer v. DeWitt, 47 N.Y. 532 (1872), in which the court enjoined a defendant from publishing the plaintiff’s dramatic work, and expressly distinguished the right of public performance, which was statutory only, from the right of first publication, which was recognized by the common law. It relied in part on a federal case, RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940), a decision by Learned Hand that characterized the common-law right as a “right of reproduction,” and held that any common-law right had been divested upon first sale of the recordings to the public, notwithstanding the legend “Not Licensed for Radio Broadcast.” It noted that the latter holding was overruled by a later federal case, Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955), which held “selling a record to the public does not divest the copyright holder of its exclusive interest in the right to copy and distribute the protected sound recording,” but the New York held that Capitol Records did not overrule the underlying premise of Whiteman, that the common-law right was a right of reproduction only. The court distinguished several other cases on the ground that they only involved a right to reproduce and sell records, even though some of them had cited a 1937 Pennsylvania case, Waring v. WDAS Broadcasting, 194 A. 631 (Pa. 1937), which had expressly found a public performance right under state law. Accordingly, it concluded that “common-law copyright protection prevents only the unauthorized reproduction of the copyrighted work, but [it] permits a purchaser to use copies of sound recordings for their intended purpose, namely, to play them.” (Slip op. at p. 23)
Next, the court considered societal expectations. It noted that “at hearings held before Congress, representatives of the recording industry have indicated that copyright owners do not have a right of performance.” (Slip. op. at p. 24) It opined that it would be illogical to conclude that the right of public performance would have existed for decades without the courts recognizing such a right as a matter of state common law, and in the absence of any artist or record company attempting to enforce that right in this state until now.” (Id. at 26) Finally, it concluded that “[b]ecause the consequences of [recognizing such a right] could be extensive and far-reaching, and there are many competing interests at stake, which we are not equipped to address,” that the issue was best left to the legislature to address. (Id. at 28) “We cannot ignore the fact that Congress studied the nature and scope of the right to the public performance of sound recordings for nearly two decades before revising the federal statutes to recognize a limited right.” (Id. at 30)
Judge Fahey issued a concurring opinion in which he agreed with the majority on the certified question, but expressed his view that the scope of the phrase “public performance” should be limited. He reasoned that access to sound recordings falls on a continuum between performance and publication, in five steps: 1) traditional AM/FM radio; 2) Internet radio, which is also free but advertiser-supported; 3) subscription broadcast services, including satellite radio; 4) Interactive on-demand services, which for a subscription, provides access to an unlimited music library; and 5) purchase of a sound recording, either in digital form or in hard copy. (Concurring op. at 2-3) He expressed his opinion that “public performance” should include only the first three categories, and that the fourth category should be treated like a reproduction and sale, and therefore should fall within the common-law right. “We must recognize that the rental or lease of sound recordings fixed prior to February 15, 1972 by Internet broadcasters who provide the public ‘on-demand’ access to such recordings is a form of publication under copyright law.” (Concurring op. at 11).
The two dissenting judges would hold that “New York’s broad and flexible common-law copyright protections for sound recordings encompass a public performance right that extends to the outer boundaries of current federal law.” (Dissenting op. at 1) After reviewing the facts in some detail, including the evolution of digital music, the dissent noted that “since 1909, the federal Copyright Act has consistently expressed that state common law, unless preempted, may afford copyright protections for sound recordings.” (Id. at 8) It confirmed that “our common law does not treat the broadcast of the recording as a publication that divests a copyright holder of any common law copyright.” (Id. at 10) It opined that the basic theory of property as a “bundle of rights” included a right of public performance (id. at 12-13); and it further opined that “publication only occurs when the copyright holder gives up all of the sticks in the bundle,” that is, when “a copyright holder expressly and intentionally relinquishes any future right to control any aspect of the work’s future use. (Id. at 20) (This is a radical view of publication that would have allowed perpetual control over any work, including literary works, in the absence of preemption by federal copyright.) It rejected the underlying premise of Whiteman, reasoning that “Congress’s inclusion of a right of performance in the [1976 Copyright Act] indicated that it understood that state common law included a right of performance for other types of artistic works.” (Id. at 21) Nonetheless, it recommended that the state common-law right “track” federal law on post-1972 sound recordings, including the exemption for traditional AM/FM broadcasters. (Id. at 28) It did not expressly address whether state law should also impose a compulsory license on sound recordings in favor of subscription broadcasts, such as Sirius. The majority criticized the dissent on this point, noting that New York did not have the power to force the U.S. Copyright Office to set royalty rates and collect fees for pre-1972 sound recordings. (Majority op. at 33-34) It also noted that a state-law right would potentially interfere with the law in other states, since Sirius XM is required to broadcast the same program in all of the lower 48 states. (Majority op. at 35)
The case now returns to the U.S. Court of Appeals for the Second Circuit, which will implement the ruling. Although the majority left the door open for a possible claim for unfair competition (Majority op. at 35), this caveat make little sense, because the unfair competition action in New York is a broad right against misappropriation that has the potential to make the limitations that the court just announced on common-law copyright meaningless. One suspects that the Second Circuit will be reluctant to certify a second question to the New York Court of Appeals, so that it will have to decide the question of unfair competition on its own. In the absence of a common-law right of public performance, it makes no sense for the Second Circuit to eviscerate the majority’s holding by ruling that digital broadcasts unfairly compete with rights holders of pre-1972 sound recordings, who receive no public performance royalties from any source.
Because the ruling was based on state law, rather than federal law, there is no grounds for an appeal to the U.S. Supreme Court. The New York Court of Appeals’ ruling is the last word on a question of New York state law.
Implications of the Ruling
First and foremost, the ruling is a huge victory for Sirius XM Radio and other digital broadcasters. New York was the state that had the most developed case-law on common-law copyright, and some of the cases had broad dicta that could be read to support a common-law right of public performance. It is likely that many other states will now follow New York’s lead in rejecting a common-law right of public performance. The ruling reduces the amount of the contingent settlement that Sirius XM entered into with the class in the Flo & Eddie cases, and it also makes it unlikely that Sirius XM and other broadcasters will have to continue to pay royalties to the five major record labels after 2017, in the absence of Congressional action. The ruling is also a victory for analog broadcasters, who faced the prospect of having to pay royalties to pre-1972 sound recording copyright owners for the first time in their history. Even the two dissenters agreed that the federal limitation exempting traditional AM/FM radio from paying royalties should be carried over into state law. Finally, it allows anyone who has paid a license for a live performance of a musical work to play an existing sound recording without paying any additional royalties to the sound recording copyright owner. (Sync licenses, however, which involve reproduction of an existing sound recording in a derivative work, such as on the soundtrack of a motion picture or TV show, will still be required.)
The ruling is also a victory for the listening public. One danger of imposing state-law public performance rights was that broadcasters would simply stop playing pre-1972 sound recordings to avoid paying royalties. Indeed, this consequence was already becoming reality. Although Sirius XM had hedged its bets by settling with major record labels, it had simply stopped playing songs by the Turtles and other small rightsholders. This ruling makes it more likely that songs held by minor rightsholders will return to the airwaves after the dust has settled.
California remains a wild card in this equation, since the ruling in California was not based on California common-law, but upon a California statute. This ruling will not have any direct impact on the ultimate determination on the merits in California, which likely will have to be certified to the California Supreme Court. Nonetheless, as a practical matter it might make the California courts hesitant to construe the statute in a way that contradicts the prevailing view of the common law in other jurisdictions.
Another important caveat is the effect on on-demand subscription broadcasters that allow listeners to choose to listen to specific songs. The concurring opinion opined that such broadcasts should be excluded from the definition of “public performance.” Although the two dissenters did not agree with that reasoning, they would classify such broadcasts as public performances and would impose royalties. Thus, if a case involving such an on-demand service should reach the New York Court of Appeals, the six participating justices would be split on the result, 3-3. That could leave the recused justice (Chief Judge DiFiore) as the deciding vote. However, if she recuses herself in other cases involving pre-1972 sound recordings, the court would be deadlocked. It is likely that this loose end will not be resolved quickly. Meanwhile, on-demand broadcasters will have to decide whether to risk not paying royalties.
Absent a big surprise in any other states, the action shifts to Congress. In a 2011 Report, the Register of Copyrights recommended that Congress bring pre-1972 sound recordings into the federal copyright system. Bills to that effect were introduced but did not get out of committee. Now that Republicans control both houses of Congress and the White House, however, it is possible that such a bill could be enacted in the next four years. Of course, the Register of Copyrights has also recommended the enactment of full public performance for sound recordings since 1978, and Congress has taken no action. Ironically, it is not only broadcasters who oppose such a right, but also musical-work copyright holders, who fear that their share of the pie will be reduced if broadcasters have to pay royalties to sound-recording copyright owners as well. Recognition of public performance rights under state law perhaps would have made it more likely that Congress would act. But it also would have been tremendously disruptive to the status quo, and it would potentially have involved conflicts between states, with some states recognizing such rights while other states rejected them. (Two states, North and South Carolina, have statutes dating back to 1941 that expressly prohibit recognition of a public performance right in sound recordings.) Congressional action, while uncertain, is the best way to address this issue.