A Seismic Ruling Undone: California’s Sound Recording Copyright Statute Does Not Include Public Performance Rights—Flo & Eddie v. Sirius XM (Guest Blog Post)

By Guest Blogger Tyler Ochoa

Last week, the U.S. Court of Appeals for the Ninth Circuit held that California Civil Code section 980(a)(2), which grants “exclusive ownership” of a sound recording fixed before February 15, 1972, to its “author,” provides only an exclusive right of reproduction and distribution, and does not provide an exclusive right of public performance. Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. 17-55844 (9th Cir. Aug. 23, 2021).

The ruling overturns a “seismic” district court ruling from 2014 that I wrote about in a previous blog post, one that “threaten[ed] to undo a 75-year-old consensus that state law does not provide a public performance right for sound recordings.” It also marks the likely end of an eight-year campaign by Flo & Eddie (owners of the sound recording copyrights of the band “The Turtles”) to obtain royalty payments for digital broadcasts and streaming of pre-1972 sound recordings under state law. After their initial courtroom success in 2014, Flo & Eddie suffered a series of defeats, as both the New York Court of Appeals and the Florida Supreme Court held that their states’ common-law copyrights did not include public performance rights. (See my previous blog post on the New York ruling.) But much like George Washington’s army, even though Flo & Eddie lost many individual battles, they ultimately won the war, as their quixotic litigation campaign prompted Congress to grant protection to pre-1972 sound recordings equivalent to that provided to newer sound recordings under federal copyright law. This was accomplished by the enactment in 2018 of the Classics Protection and Access Act (now codified at 17 U.S.C. § 1401), in Title II of the Hatch-Goodlatte Music Modernization Act.  (See my analysis of the Classics Protection and Access Act.)

So why were the two parties still fighting about California law, after enactment of the federal legislation?  This litigation was a residual action (commenced in 2013) that concerned public performances that occurred before the Classics Protection and Access Act was enacted.  It was certified as a class action on behalf of a large number of sound recording copyright owners (but excluding the major record labels, which had already entered into a separate settlement with Sirius XM).  The parties had entered into a contingent settlement that provided a large amount of money if Flo & Eddie succeeded in establishing state-law public performance rights in all of the three actions (California, New York, and Florida), varying amounts of money if they succeeded in only one or two of the states, and a small amount of money if Flo & Eddie failed in all three actions.  Because the performances took place before the Classics Act was enacted in 2018, the lawsuit was preempted by federal law only if royalties or a settlement had been paid; but the contingent settlement could not be paid until the underlying law was determined.  Hence, the only money directly at stake in the residual action was royalties for past digital performances of sound recordings under California law.

In the interests of full disclosure: I authored an amicus brief in this case (as I did in the other Flo & Eddie cases) on behalf of 15 copyright and intellectual property law professors, arguing three major points: first, because the phrase “exclusive ownership” in the statute dated back to its enactment in 1872, it should be construed in accordance with the copyright law of that time, when sound recordings did not exist and musical work copyright owners did not have any public performance rights; second, for eighty years it was considered settled law that there was no public performance right in published sound recordings; and third, because broadcast signals cannot be confined to the borders of a state, recognizing a public performance right under state law would violate the dormant Commerce Clause.  I was therefore extremely pleased that the Ninth Circuit not only cited our amicus brief (slip op. at 14 & 17), but also relied on our analysis of the first two points in deciding in favor of Sirius XM Radio, Inc.

Background

If you are new to this issue, you should read my prior blog posts on the issue, and in particular, the six points in the “Background” section of my original post.  To summarize very briefly: 1) copyright law distinguishes between a musical work (the notes and the words) and a sound recording (a particular recorded performance), granting a separate copyright to each; 2) sound recordings were not added to the federal copyright act until February 15, 1972; 3) pre-1972 sound recordings were still protected against reproduction and distribution under state law (usually state common law, but statutory law in California); 4) despite one ruling to the contrary in Pennsylvania, the Second Circuit held in 1940 that there was no common-law public performance right in published sound recordings, a ruling that was widely accepted nationwide; 5) when sound recordings fixed on or after February 15, 1972 were added to the copyright act, Congress still did not grant them a public performance right; and 6) in 1995, Congress did grant sound recordings a public performance right in digital audio transmissions (streaming and satellite), but it excluded audiovisual transmissions (which usually have to get “sync” licenses anyway) and it exempted traditional AM/FM radio.

(If you fully understand those six points already, you’re ready to move on.  If not, go back and read the “Background” section in my original post for more detail.)

One thing that I omitted from my original post was the evidence that the 1940 Whiteman decision (holding there was no public performance right in published sound recordings) was widely accepted as the de facto norm.  Owners of sound recordings (record labels) repeatedly lobbied Congress, asking Congress to enact a public performance right for sound recordings, specifically because they lacked any such right under existing law (according to their own testimony).  They specifically cited classic pre-1972 sound recordings (including Bing Crosby’s classic 1942 recording of “White Christmas”) in their arguments.  Also, the California statute at issue had been on the books since 1872, and it had existed in its current form since 1982. The notion that there was already a public performance right under state law, that everyone had accidentally overlooked for the past 80 years (or even the past 40 years), was almost ludicrous.

Almost.  The problem with Flo & Eddie’s argument was that it wasn’t completely crazy, except to someone steeped in this history. When the lawsuit was first filed, it was clear that rights in pre-1972 sound recordings were governed by state law, not federal law.  And even though all of the cases arising under the California statute and New York common-law involved reproduction and distribution rights, the language of the California statute, and dicta in many of those cases, was broad enough to include public performance rights.  Moreover, sound recording copyright owners had an ahistorical-but-plausible explanation why those rights hadn’t been used before: economics.  Back when sales of records, cassette tapes, and CDs were the primary means of making money, radio airplay was considered free advertising for record labels.  But as record and CD sales dried up, and streaming became the primary means of making money, the disparate treatment of pre-1972 sound recordings (which were earning nothing) and 1972-and-later sound recordings (which at least got streaming revenue from digital audio transmissions) became too obvious for performers and record labels to ignore.

Flo & Eddie Change the Landscape

Flo & Eddie, Inc., is owned by two founding members of the 1960s band The Turtles.  Their biggest hit was the 1967 song “Happy Together.” On Aug. 1, 2013, they filed a class-action lawsuit in Los Angeles Superior Court under California Civil Code section 980(a)(2).  Flo & Eddie then filed two similar suits in federal court, under New York common law in the Southern District of New York (Aug. 16, 2013), and under Florida common law in the Southern District of Florida (Sept. 3, 2013). On September 11, 2013, five major record labels (ABKCO Music & Records, Capitol Records, Sony Music Entertainment, UMG Recordings, and Warner Music Group) filed a similar lawsuit in state court in California.

The California cases were promptly removed to federal court on the basis of diversity.  One year later, on Sept. 22, 2014, the federal district court rendered its original “seismic” ruling, holding that “exclusive ownership” in California Civil Code section 980 included public performance rights. Two months later, Flo & Eddie won a ruling that New York common law included public performance rights.  62 F. Supp. 3d 325 (S.D.N.Y. 2014). The New York ruling was certified for immediate appeal. While that appeal was pending, the district court certified the California case as a class action (on May 15, 2015).  One month later, on June 22, 2015, Sirius XM won a ruling that Florida common law did not include public performance rights.

A few days later, Sirius XM announced that it had reached a settlement with the five major record labels (which controlled roughly 80% of the pre-1972 sound recordings at issue), agreeing to pay $210 million for the right to broadcast their pre-1972 sound recordings through the end of 2017.  That settlement left Flo & Eddie’s lawyers representing a class of only about 20% of the pre-1972 sound recording copyright owners. But they had lost a lot of their leverage, because Sirius XM could continue playing the vast majority of pre-1972 sound recordings, and it could simply stop playing the remaining ones.

In April 2016, the Second Circuit certified the question of New York law to the New York Court of Appeals (the highest court in New York).  Two months later, the Eleventh Circuit certified the question of Florida law to the Florida Supreme Court. Meanwhile, the class action in California proceeded with notice to the class. A trial was scheduled for November 2016.

On the eve of trial in the California action, the parties announced they had reached a contingent settlement. The deal was complex, with contingencies depending on the ultimate outcome of appeals in each of the three actions. It provided for an immediate payment of $25 million in royalties to the class. In addition, Sirius XM would pay an additional $5 million for each of the three cases if Flo & Eddie prevailed on appeal. Finally, Sirius XM also agreed to pay royalties for future public performances (for ten years) at a rate of 5.5% of gross revenue (less the amount due to the major record labels); but the rate would be reduced by 2% if Sirius XM won on appeal in New York, by 1.5% if it won in Florida, and by 2% if it won in California. All told, the settlement was worth a minimum of $25 million, and a maximum of about $99 million ($40 million fixed, and up to $59 million in estimated royalties through 2028) if Flo & Eddie won all three cases. That gave the parties 74 million reasons to continue fighting in each of the three states.

The Tide Turns

One month later, on December 20, 2016, the New York Court of Appeals reached its decision, holding 4-2 that there was no common-law right of public performance in New York. (For the specifics of that ruling, see my commentary.) Accordingly, the Second Circuit reversed the district court and dismissed Flo & Eddie’s claims.  849 F.3d 14 (2d Cir. 2017).

In March 2017, in a separate case filed by Flo & Eddie against Pandora, the Ninth Circuit certified the issue of California law to the California Supreme Court. 851 F.3d 950 (9th Cir. 2017). (The case against Pandora reached the Ninth Circuit first because Pandora raised the issue in a motion to strike under California’s anti-SLAPP law. SLAPP stands for “strategic lawsuit against public participation.”)  Two months later, in May 2017, the district court approved the contingent settlement agreement in the Sirius XM cases.  In accordance with the contingent settlement, Sirius XM filed its appeal in the Ninth Circuit in June 2017; but the appeal was stayed pending the outcome of the appeal in the Pandora case.

In October 2017, the Florida Supreme Court ruled that Florida common law does not recognize an exclusive right of public performance. Accordingly, the Eleventh Circuit affirmed the district court’s dismissal of Flo & Eddie’s claims.

Congress Gets Involved

The disparate treatment between pre-1972 sound recordings and those fixed on or after Feb. 15, 1972, did not escape the notice of Congress.  Even before the Central District of California issued its original “seismic” ruling in 2014, nine members of Congress had introduced the “Respecting Senior Performers as Essential Cultural Treasures Act” or the RESPECT Act. H.R. 4772 (113th Congress).  In April 2015, four members of Congress introduced the Fair Play Fair Pay Act, H.R. 1733 (114th Congress), which would not only have extended digital audio transmission rights to pre-1972 sound recordings, but also would have repealed the exemption for traditional AM/FM radio.  Neither bill made it to a hearing.

In the 115th Congress, however, things heated up.  In July 2017, the “Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society Act,” or the “CLASSICS Act,” was introduced in the House.  H.R. 3301. The bill was intended to grant federal protection to pre-1972 sound recordings.  In February 2018, the same bill was introduced in the Senate.  S. 2393.  In May 2018, Senator Ron Wyden introduced the “Accessibility for Curators, Creators, Educators, Scholars, and Society to Recordings Act” or the “ACCESS to Recordings Act,” S. 2933, a similar bill that would have extended federal statutory copyright to pre-1972 sound recordings. Eventually, the two bills were combined into the Classics Protection and Access Act, which was enacted on October 11, 2018, as Title II of the Hatch-Goodlatte Music Modernization Act of 2018.

The Classic Protection and Access Act, codified at 17 U.S.C. § 1401, extended federal protection to pre-1972 sound recordings that is equivalent, but not identical, to federal statutory copyright for sound recordings fixed on or after February 15, 1972.  For details concerning this legislation, see my previous blog post on the Act.

The Act contained two preemption provisions. First, the Act preempts all state-law causes of action arising on or after the date of enactment for any use of pre-1972 sound recordings, including digital audio transmissions, except that it stays neutral with regard to state-law actions (if any) for public performances based on non-subscription broadcast transmissions of sound recordings that are not digital audio transmissions.  (In other words, it leaves the door open for state-law causes of action based on analog transmissions or audiovisual digital transmissions.) 17 U.S.C. § 301(c).  Second, the Act preempts all state-law claims that arose before the date of enactment, only for digital audio transmissions or reproductions, and only if statutory royalties or a settlement was paid (or if the transmission would have been exempt).  17 U.S.C. § 1401(e).  As a result, the Act did not automatically moot the certified questions in the Pandora case that were then pending in the California Supreme Court.

Nonetheless, the California Supreme Court decided to duck the issue.  It dismissed the certified questions, writing: “In light of the enactment of United States Public Law No. 115 264, the ‘Orrin G. Hatch-Bob Goodlatte Music Modernization Act,’ resolution of the questions posed by the Ninth Circuit Court of Appeals is no longer ‘necessary to … settle an important question of law.’”  No. S240649 (May 22, 2019). When the Pandora case returned to the Ninth Circuit, the court wrote:  “Whether the MMA applies to and preempts Flo & Eddie’s claims … cannot be answered on the record before us. The resolution of this issue depends on various unanswered factual questions …”  Accordingly, the Ninth Circuit vacated the district court’s ruling on Pandora’s anti-SLAPP motion and remanded the case to the district court. 789 Fed. Appx. 569 (9th Cir. 2019).

On remand, the district court again rejected Pandora’s anti-SLAPP motion. It held that the case did not arise from Pandora’s First Amendment activity (reproducing and broadcasting pre-1972 sound recordings), but from Pandora’s failure to pay compensation for those activities. It also ruled that Pandora’s broadcasts were not “in connection with a public issue or topic of public interest,” as required by California’s anti-SLAPP law. Cal. Code Civ. Proc. § 425.16(e). Finally, it ruled that 17 U.S.C. 1401(e)(1), which “preempts any claim of common law copyright or equivalent right under the laws of any State arising from a digital audio transmission or reproduction that is made before the date of enactment of this section of a sound recording fixed before February 15, 1972,” did not apply to claims that were already pending in court on the date of enactment. Pandora immediately filed an interlocutory appeal, which is still pending in the Ninth Circuit.  In January 2021, Pandora’s motion to stay the appeal pending the outcome of the Sirius XM case was granted.

The Remaining Issues

After the dust had settled, what remained at stake in the California action against Sirius XM under the contingent settlement was: 1) an additional fixed payment of $5 million if Flo & Eddie prevailed on the appeal, and 2) a royalty of 2% of gross revenues (less the amount paid to the major record labels) for the period between January 1, 2018 and October 11, 2018 (the date of enactment of the Music Modernization Act, which preempted state-law claims prospectively).  The California action was fully briefed in the second half of 2020.  Oral argument was held on February 8, 2021 (coincidentally, on my birthday!).

The California action was brought under California Civil Code section 980(a)(2), which 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 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.

(The exclusion for “sound-alike” recordings is consistent with federal law for post-Feb. 15, 1972 sound recordings.  17 U.S.C. §114(b).)

The district judge reasoned that “exclusive ownership” included all rights to which a copyrighted work could be put, including public performances; and that since there was only one express exclusion (for “cover” recordings), no other exclusions could be implied.

The Ninth Circuit, however, accepted our “textualist” argument that since the phrase “exclusive ownership” had existed without change since Civil Code section 980 was first enacted in 1872, the court should construe the phrase in accordance with the common law at that time:

To answer this 21st century question about the obligations of satellite radio stations, we must rewind back almost 150 years and look to the common law in the 19th century when California first used the phrase “exclusive ownership” in its copyright statute. At that time, no state had recognized a right of public performance for music, and California protected only unpublished works. Nothing suggests that California upended this deeply rooted common law understanding of copyright protection when it used the word “exclusive ownership” in its copyright statute in 1872. So we do not construe “exclusive ownership” [today] to include the right of public performance.

Slip op. at 4-5.

In 1872, sound recordings did not exist, and there was no public performance right for published musical works.  Anyone who bought a copy of the sheet music could perform a song in public without payment of any royalties.  In 1856, Congress enacted a statutory public performance right for dramatic works only.  Because state law governed unpublished works, however, this statute applied only to published dramatic works.  Suddenly, owners of unpublished dramatic works began to claim a common-law right of public performance in their works.  Prior to 1872, however, most such cases were unsuccessful.  It was not until after 1872 (and in particular, after Ethan Drone’s influential 1879 treatise) that courts began to recognize a public performance right in an unpublished dramatic work.  See Jessica Litman, The Invention of Common Law Play Right, 25 Berkeley Tech. L.J. 1381 (2010).  Indeed, at the time California’s statute was expressly limited to unpublished works only.

Put another way, no court as of 1872 had recognized the right of public performance under any nascent understanding of [state] copyright law. So when California first enacted its copyright statute in 1872, the term “exclusive ownership” almost certainly did not include a right of public performance. Rather, “exclusive ownership” referred, and still refers, to the owner’s common law copyright in an unpublished work to reproduce and sell copies of that work.

Slip op. at 16.  Moreover, California Civil Code 980 had been copied word-for-word from David Dudley Field’s proposed Civil Code for the state of New York (1865); and, as noted above, in 2016 the New York Court of Appeals held that there was no common-law right of public performance under New York common law.  Slip. op. at 17-18.

When radio first became common, performers began to claim a common-law right of public performance in their sound recordings.  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 right to prevent the unauthorized broadcast of the recording (notwithstanding the same restrictive legend).  When the Supreme Court denied certiorari, that was that: “Judge Hand’s opinion was [accepted as] the last word on the legality of broadcasting sound recordings.” Kevin Parks, Music and Copyright in America: Toward the Celestial Jukebox 121 (ABA 2012).  Ever since, performers and record labels have tried to get Congress to overturn that decision; but it has held firm.

“Of course, Flo & Eddie and its amici contest this interpretation. But they fail to direct us to a single case in which a court recognized a discrete property interest in the post-sale performance of a sound recording.”  Slip op. at 19.  “In short, the lack of a judicially recognized right of public performance across dozens of states [with the exception of Pennsylvania] underscores that no such right ever existed under the common law.”  Slip op. at 21-22.

The Implications of the Ruling

In my original post, I lamented that the district court’s ruling “threatens to undo a 75-year-old consensus that state law does not provide a public performance right for sound recordings.”  I also wrote:

The Register of Copyrights has recommended that Congress bring pre-February 15, 1972 sound recordings under federal law…. 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.

I am pleased that after eight years of expensive litigation, courts and legislators have reached the same conclusion.  Courts in New York and Florida led the way by denying a right of public performance under state law, putting the issue back in the hands of Congress.  Had Congress not brought pre-1972 sound recordings into parity with later sound recordings, either the Ninth Circuit or the California Supreme Court might have been tempted to interpret Civil Code section 980 more literally, in the interests of fundamental fairness.  Now that Congress has acted, and the Ninth Circuit has rejected the claim under California law, the issue should be put to rest.

Flo & Eddie’s action against Pandora remains pending; but the Sirius XM ruling will undoubtedly be applied against Flo & Eddie under principles of collateral estoppel.  Moreover, since the ruling was made in a certified class action, it is binding on any sound recording copyright owners that did not “opt out” of the litigation.  Sound recording copyright owners could still try in other states, but the combination of the preemption provisions in the Music Modernization Act and the statute of limitations makes such actions extremely unlikely.

Federal law still does not recognize a public performance right for sound recordings in audiovisual transmissions; but those are usually considered part-and-parcel of the “sync” licenses that have been obtained to reproduce the work on the soundtrack.  The major remaining bone of contention is traditional AM/FM radio.  Even though most radio broadcasters also simulcast their analog signals in digital form, there is an express exemption for such broadcasts in federal law.  17 U.S.C. § 114(d)(1).  Broadcasters will not give up their federal exemption lightly.  But as a result of the Flo & Eddie cases, sound recording copyright owners will have to persuade Congress, instead of trying to rewrite history through creative interpretations of state law.