Wednesday, September 24, 2014

The Larger Ramifications of the SiriusXM Defeat in Court

Score one for the musicians: a California Federal Court Judge delivered a legal decision that could have sweeping consequences for the music industry by declaring that Flo & Eddie (of the Turtles) prevail on the issue of the public performance of their pre-1972 sound recordings in their legal action against SiriusXM.  The ongoing lawsuit seeks $100 million in damages but the money is hardly the only consequence of this ruling that could eventually disrupt the operations of the satellite radio giant as well as other services like Pandora.

           The lawsuit addressed the issue of music created before sound recordings began falling under Federal copyright protection. Sirius had taken the position that because Congress did not expressly include pre-1972 recordings when it established the performance right for sound recordings in 1995, Sirius did not have to pay royalties on pre-1972 recordings it used on its service. This is a position held by Pandora and the Digital Media Association (which includes Google among its membership) and is sometimes referred to as the “Pandora Loophole.” Since Flo & Eddie managed to get back ownership of their masters years ago, they were able to bring the case themselves without any major record company involvement (which certainly streamlined the process). SiriusXM did not seek authorization from plaintiffs nor were they paying royalties on hit songs like "Happy Together," "It Ain't Me Babe" and "She'd Rather Be With Me."  Although SiriusXM argued that interpreting California State law to cover public performance "would radically overturn decades of settled practice", the Judge granted summary judgment to the plaintiffs on the issue of whether SiriusXM violates public performance rights.

           In reaching his conclusion, Judge Gutierrez examined a California law that was enacted in 1982 and meant to address pre-1972 recordings. The statute was silent on whether “exclusive ownership” of pre-1972 sound recordings carries within it the exclusive right to publicly perform the recording. As such, the Judge had to determine whether California's law was inclusive or exclusive, and the Judge's reading of the law is that other than the exception for cover songs, there's nothing exclusive about it. The Judge held that copyright ownership of a sound recording under § 980(a)(2) of the California copyright statute includes the exclusive right to publicly perform that recording. In the ruling the Judge "infers that the legislature did not intend to further limit ownership rights, otherwise it would have indicated that intent explicitly."

           SiriusXM failed to persuade the Judge that California's law was ambiguous in the wake of the passage of new Federal copyright law, and also struck out in its contention that decades of television and radio broadcasters, restaurant and bar owners, website operators and others exploiting pre-1972 sound recordings supported its interpretation of the law. The plaintiffs relied on two prior cases (including one ruling that dealt with a website that sold songs from The Beatles for 25 cents) for the proposition that precedent supported their cause. The Judge stated that "although the breadth and specificity of cases acknowledging that exclusive ownership of a sound recording includes the right to publicly perform the recording are slight, Defendant has not directed the Court to a single case cutting against the right to public performance, even implicitly or in dicta."

           There is more to come in this case, but so far this is a huge victory whose consequences almost impossible to overstate. It definitely may be the beginning of the end of the “Pandora Loophole” and it affects many artists from Miles Davis and Duke Ellington to Bob Dylan and Neil Young, and many other great recording artists who are responsible for putting American music on the map.

           Of course, the ruling will likely be appealed as the plaintiffs eye a trial that will determine the awarding of damages. Meanwhile, the ruling could motivate SiriusXM, Pandora and many in the tech industry to start paying fairly for the use of the recordings or, more likely, it will motivate them to lobby Congress for new copyright laws that cover pre-1972 recordings. Those that are the creators and owners of pre-1972 sound recordings will need to stay vigilant. The ruling should also be read closely by other businesses including terrestrial radio operators and bars that publicly perform older music. SiriusXM is facing another lawsuit from the RIAA in California as well as more lawsuits from Flo & Eddie in other states. Pandora is also facing a lawsuit by record labels in New York. And the ruling potentially opens the floodgates to more litigation on the issue of pre-1972 music. Finally, as Wall Street begins to understand the level of liability that many of these companies have taken on the reaction will be interesting.

           Ultimately, for all pre-1972 sound recordings to be properly protected under copyright, it is the U.S. copyright law that needs to be amended and updated. Federal law preempts State law, so all sound recordings would be equally protected regardless of the language of any particular State's law. However, getting such legislation through Congress, as necessary as it is to protect the interests of the artists and labels who created and own those pre-1972 sound recordings, is bound to be a long, uphill battle.

Wallace E.J. Collins III is an entertainment and intellectual property lawyer with more than 30 years of experience based in New York. He was a recording artist for Epic Records before receiving his law degree from Fordham Law School. Tel: (212) 661-3656; 

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