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Second Circuit Rules in Record Distribution Case
The U.S. Court of Appeals for the Second Circuit upheld cancellation of the distribution by Artemis Records of a cover recording of “The Ketchup Song (Heh Hah)” for which 24/7 Records failed to obtain a compulsory license for the musical composition. But the appeals court allowed 24/7 to proceed with claims of wrongful termination of 24/7's overall distribution contract with Artemis and that Artemis' distributor Sony Music, which distributed an earlier internationally successful recording of “The Ketchup Song,” had tortiously interfered with the 24/7-Artemis agreement. 24/7 Records Inc. v. Sony Music Entertainment LLC, 04-5563.
Florida-based 24/7 signed a deal for Artemis to serve as 24/7's exclusive record distributor in the United States. The agreement, which also acknowledged that Sony's RED Distribution would work on behalf of Artemis, stated:
“[24/7] solely shall be responsible for, and shall pay all costs in connection with, each of the following:
…
(b) The securing, in writing, of all necessary licenses, consents and permissions required for the distribution of Records hereunder, including, without limitation, from recording artists, producers, other performers, music publishers, unions and guilds, and other Persons rendering services or granting rights in connection with the Recordings and the Records.”
The agreement further stated that 24/7 represented and warranted that 24/7 already had “or prior to release hereunder shall have, and shall at all times thereafter continue to have in effect a valid and enforceable grant of rights or license … with respect to each Recording, each musical composition and all other copyrightable materials embodied in or on the Records (including, without limitation, mechanical licenses for all musical compositions and licenses for so-called 'samples').”
The Second Circuit explained: “This representation required 24/7 to obtain a license for use of the Ketchup Song, which 24/7 failed to do, before Artemis became obligated to distribute that record. … In order to comply with the Artemis contract and to avoid copyright infringement for the Ketchup Song cover, 24/7 was required to obtain either a negotiated license (which Sony was free to grant or deny) or a compulsory license, which would allow 24/7 to cover the Ketchup Song without Sony's consent so long as it notified Sony of its intent to do so and complied with such statutory requirements as the payment of royalties at a fixed statutory rate.”
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