Focus on Flo & Eddie's New York Litigation Seeking Public Performance Rights in Pre-1972 Recordings

[Editor's Note: This article is presented as part of our ongoing coverage of the closely watched litigations involving whether there should be a public performance right in pre-Feb. 15, 1972, sound recordings.]

In February 2015, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York certified the following question for interlocutory appeal to the U.S. Court of Appeals for the Second Circuit:

“Under New York law, do the holders of common-law copyrights in pre-1972 sound recordings have, as part of the bundle of rights attendant to their copyright, the right to exclusive public performance of those sound recordings?”

The New York question, squarely presented for the first time in Flo & Eddie Inc. v. Sirius XM Radio Inc., 13-cv-05784, is one with potentially momentous results for the music industry and media companies. The Beatles, Elvis Presley, Bob Dylan, the Rolling Stones and countless other artists created recordings before Feb. 15, 1972, that remain hugely popular but are protected only under state law, not the federal Copyright Act. If these recordings enjoy a right of public performance equivalent to the federal rights provided for post-1972 recordings, as District Judge McMahon has held, then digital transmission services like Sirius XM and Pandora could find themselves having to pay royalties for transmitting these recordings going forward, and paying infringement damages to thousands of recording owners for past unlicensed performances.

Of even greater potential dislocation would be the potential effect of such a ruling on terrestrial broadcast stations (e.g., AM and FM radio), because the existence of such a public performance right under New York state law would not necessarily be limited to digital audio public performance as is current federal law. (Judge McMahon did not address this argument, however, nor did the plaintiffs' allegations, and no terrestrial broadcaster was a party to the case so any comments on the issue would in any event have been dicta.)

Case Background

Flo & Eddie Inc. (F&E) is the corporation recently formed by two founding members of the 1960s pop group The Turtles, best known for its hit “Happy Together,” which displaced the Beatles “Penny Lane” as the Number 1 song on the U.S. pop charts for three weeks in 1967. F&E has acquired ownership of the common-law copyrights in the group's sound recordings, all of which were recorded before 1972. Like other holders of pre-1972 sound recording copyrights, F&E and its predecessors have never received any public performance royalties for these recordings, from any source.

On Aug. 16, 2013, F&E filed a putative class action suit in the Southern District of New York against satellite broadcaster Sirius XM, alleging that digital transmissions of the Turtles recordings, and certain reproductions made by Sirius as part of its transmission process, were infringements of F&E's rights in those recordings under New York common law.

As noted above, federal copyright protection is not available for pre-1972 sound recordings, but post-1972 recordings do receive federal protection against unauthorized performance by means of digital transmission, and some such “non-interactive” transmissions, including those by Sirius XM, are subject to the payment of statutory royalties to the copyright holders. F&E argued, in essence, that its rights under New York common law should include a right of public performance equivalent to the federal right. F&E also filed analogous actions in California and Florida. Flo & Eddie Inc. v. Sirius XM Radio Inc., 13-5693 (C.D.Calif.); Flo & Eddie Inc. v. Sirius XM Radio Inc., 2013cv23182 (S.D.Fla.).

In November 2014, Judge McMahon denied Sirius' motion for summary judgment and ordered the satellite broadcaster to show why summary judgment as to liability should not issue in favor of F&E. In reaching this result, the district judge rejected two principal arguments raised by Sirius. First, the court held that New York common law protection for sound recordings includes a right of public performance. Second, sustaining the claims of F&E would not violate the Dormant Commerce Clause doctrine. (The district court also dispensed with two lesser arguments raised by Sirius, finding that the copies made by Sirius were not protected under the fair use doctrine and that laches did not bar F&E's action.)

Judge McMahon's central ruling, and the one she certified for immediate appeal, was that the New York State Court of Appeals would conclude, if asked, that the exclusive rights of sound recording owners under New York common law include a right of public performance. Lacking direct precedent, the district court supported that conclusion by looking to the “background principles and history” of common law copyright in New York. The court noted that common law copyright has generally been held “at least co-extensive with the rights commanded under the Copyright Act” and cited a long history of recognition for common law performance rights in other works, such as plays and films.

Sound Recording Performance Right

Although the scope of common law rights in sound recordings had been subject to “more than a century of judicial silence,” and the lack of any prior claim of a performance right by sound recording owners was “in many ways inexplicable,” Judge McMahon declined to infer that no such right existed. Rather, “years of judicial silence implies exactly the opposite” because “no New York case recognizing a common law copyright in sound recordings has so much as suggested ' that the bundle of rights appurtenant to that copyright was less than the bundle of rights accorded to plays and musical compositions.” Further, the district court found that “modern federal law supports the notion that an express carve-out is required in order to circumscribe the bundle of rights appurtenant to copyright,” citing the statutory carve-out of performance rights that Congress imposed on sound recordings when first extending federal copyright protection to them in 1971.

Sirius raised several policy objections to Judge McMahon's conclusion, but she found them unpersuasive. First, Sirius asserted that because these older sound recordings already exist, recognizing a “new” right in them would not serve the purpose of providing an incentive to create. But, “Congress has rejected that perfectly sensible argument time and time again,” Judge McMahon wrote, and “I see no reason to conclude that either statutory or common law copyright any longer focuses on fostering future creativity, as opposed to rewarding past creativity.”

Second, Sirius claimed that the recognition of a public performance right in common law recordings would upset the expectations of investors. Again, the district judge was unmoved because “investors always assume the risk that whatever economic model they are working off will turn out not to be correct. ' All Flo and Eddie seeks here is the right to receive royalties under state law for digital broadcasting of its pre-1972 recordings ' hardly a shocking development in the world of digital broadcasting.” Judge McMahon concluded by recognizing that “Sirius may well be correct that a legislative solution would be best. But the common law, while a creature of the courts, exists to protect the property rights of the citizenry. And courts are hardly powerless to craft the sort of exceptions and limitations Congress has created.”

Under the so-called Dormant Commerce Clause doctrine, the U.S. Constitution prohibits states from interfering with interstate commerce by “directly regulating commerce in other states.” Sirius alleged that the recognition of a sound recording performance right under New York common law would constitute such “direct regulation,” but the district court found otherwise.

The California district court presiding over one of the companion Flo & Eddie cases had held in September 2014 that Congress expressly permitted states to regulate in this area when it exempted common law sound recording copyright from federal preemption in '301(c) of the 1976 Act. (In this California case, the district court ruled that Flo & Eddie have a state statutory public performance right and a viable common law misappropriation claim.)

Judge McMahon, however, disposed of the Dormant Commerce Clause argument on a different basis: “New York does not 'regulate' anything by recognizing common law copyright. The issue is nothing more than a red herring.” Instead, the she found common law copyright protection to be merely a “general” law “prescribing the liabilities or duties of citizens of a state ' Sirius has not cited, and the Court has not found any cases holding that a state's general property law and associated liability principles could, in and of themselves, violate the Dormant Commerce Clause.”

Sirius retained new counsel and filed a motion for reconsideration in December 2014. But the New York federal court denied the motion, in an opinion that frequently expressed frustration with Sirius' perceived attempt to re-litigate the merits of the court's summary judgment decision. Specifically, Judge McMahon found that the additional authority cited by Sirius, RCA v. Whiteman, 114 F.2d 86 (2d Cir. 1040), was both procedurally and substantively irrelevant, observing that the 75-year-old case was not briefed by either party during summary judgment, is “no longer good law” and in any event did not address the question of performance rights in sound recordings per se. Instead, the case assumed arguendo that New York State recognized a common law right in sound recordings, and considered whether any such right was divested by its public performance. Judge McMahon characterized Sirius' contrary construction as “contorted” and completely at odds with “every court and authority that has considered the issue.”

Judge McMahon also held that Sirius' request for reconsideration of the Dormant Commerce Clause ruling was “entirely without merit.”

Protecting Flo & Eddie from the theft of its property is not “regulation”; a simple example illustrates the point. Suppose, instead of stealing Flo & Eddie's property rights in the sound recordings, someone stole its company car, which was then used to operate an interstate taxi service. The Dormant Commerce Clause obviously would not bar Flo & Eddie from maintaining an action at common law for conversion of the car. And that would be true even though the action, and the return of the car and the end of the taxi service, would affect interstate commerce. According to Flo & Eddie's argument, state laws barring theft do not violate the Dormant Commerce Clause.

Overall, the New York district court found that Sirius' motion for reconsideration “does nothing but raise red herrings.”

Judge McMahon recognized in February 2015, in granting Sirius' motion for an interlocutory appeal to resolve the “controlling question of law” as to the precise contours of the New York common law protection for pre-1972 sound recordings: Does that protection extend to an exclusive right of public performance? Finding this issue to have precedential value for a large number of cases, the district judge also characterized it as “a difficult legal question about which reasonable minds can differ:” As to the Dormant Commerce Clause argument, however, the district court declined to certify the question because it did “not believe there is a substantial ground for a difference of opinion as to that issue.”

Conclusion

The Flo & Eddie decision is heading to the Second Circuit, but it is likely that the performance rights issue will be resolved by the New York Court of Appeals. The Southern District cannot directly certify a question to that court, but the Second Circuit can, and it has done so fairly recently on an issue involving common law copyright in pre-1972 sound recordings. (See, Capitol Records v. Naxos of America, 4 N.Y.3d 540 (2005).) Thus, Judge McMahon observed at several points that the Second Circuit would probably forward the question to the New York Court of Appeals once given the opportunity. The Second Circuit could, however, also decide to take on the Dormant Commerce Clause question that the Southern District did not certify, whether or not the common law issue is referred to the New York Court of Appeals.

The same potential range of outcomes would likely also be possible in California and Florida, where the companion cases are pending, giving up to six appellate courts the chance to weigh in. The permutations raise the possibility of a circuit split that could bring another fascinating copyright issue to the attention of the Supreme Court. As they say in radio land, stay tuned.

Robert W. Clarida is a partner of Reitler, Kailas & Rosenblatt in New York City, and author of Copyright Law Deskbook (BNA). Robert J. Bernstein practices law in The Law Office of Robert J. Bernstein in New York City.

[Editor's Note: This article is presented as part of our ongoing coverage of the closely watched litigations involving whether there should be a public performance right in pre-Feb. 15, 1972, sound recordings.]

In February 2015, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York certified the following question for interlocutory appeal to the U.S. Court of Appeals for the Second Circuit:

“Under New York law, do the holders of common-law copyrights in pre-1972 sound recordings have, as part of the bundle of rights attendant to their copyright, the right to exclusive public performance of those sound recordings?”

The New York question, squarely presented for the first time in Flo & Eddie Inc. v. Sirius XM Radio Inc., 13-cv-05784, is one with potentially momentous results for the music industry and media companies. The Beatles, Elvis Presley, Bob Dylan, the Rolling Stones and countless other artists created recordings before Feb. 15, 1972, that remain hugely popular but are protected only under state law, not the federal Copyright Act. If these recordings enjoy a right of public performance equivalent to the federal rights provided for post-1972 recordings, as District Judge McMahon has held, then digital transmission services like Sirius XM and Pandora could find themselves having to pay royalties for transmitting these recordings going forward, and paying infringement damages to thousands of recording owners for past unlicensed performances.

Of even greater potential dislocation would be the potential effect of such a ruling on terrestrial broadcast stations (e.g., AM and FM radio), because the existence of such a public performance right under New York state law would not necessarily be limited to digital audio public performance as is current federal law. (Judge McMahon did not address this argument, however, nor did the plaintiffs' allegations, and no terrestrial broadcaster was a party to the case so any comments on the issue would in any event have been dicta.)

Case Background

Flo & Eddie Inc. (F&E) is the corporation recently formed by two founding members of the 1960s pop group The Turtles, best known for its hit “Happy Together,” which displaced the Beatles “Penny Lane” as the Number 1 song on the U.S. pop charts for three weeks in 1967. F&E has acquired ownership of the common-law copyrights in the group's sound recordings, all of which were recorded before 1972. Like other holders of pre-1972 sound recording copyrights, F&E and its predecessors have never received any public performance royalties for these recordings, from any source.

On Aug. 16, 2013, F&E filed a putative class action suit in the Southern District of New York against satellite broadcaster Sirius XM, alleging that digital transmissions of the Turtles recordings, and certain reproductions made by Sirius as part of its transmission process, were infringements of F&E's rights in those recordings under New York common law.

As noted above, federal copyright protection is not available for pre-1972 sound recordings, but post-1972 recordings do receive federal protection against unauthorized performance by means of digital transmission, and some such “non-interactive” transmissions, including those by Sirius XM, are subject to the payment of statutory royalties to the copyright holders. F&E argued, in essence, that its rights under New York common law should include a right of public performance equivalent to the federal right. F&E also filed analogous actions in California and Florida. Flo & Eddie Inc. v. Sirius XM Radio Inc., 13-5693 (C.D.Calif.); Flo & Eddie Inc. v. Sirius XM Radio Inc., 2013cv23182 (S.D.Fla.).

In November 2014, Judge McMahon denied Sirius' motion for summary judgment and ordered the satellite broadcaster to show why summary judgment as to liability should not issue in favor of F&E. In reaching this result, the district judge rejected two principal arguments raised by Sirius. First, the court held that New York common law protection for sound recordings includes a right of public performance. Second, sustaining the claims of F&E would not violate the Dormant Commerce Clause doctrine. (The district court also dispensed with two lesser arguments raised by Sirius, finding that the copies made by Sirius were not protected under the fair use doctrine and that laches did not bar F&E's action.)

Judge McMahon's central ruling, and the one she certified for immediate appeal, was that the New York State Court of Appeals would conclude, if asked, that the exclusive rights of sound recording owners under New York common law include a right of public performance. Lacking direct precedent, the district court supported that conclusion by looking to the “background principles and history” of common law copyright in New York. The court noted that common law copyright has generally been held “at least co-extensive with the rights commanded under the Copyright Act” and cited a long history of recognition for common law performance rights in other works, such as plays and films.

Sound Recording Performance Right

Although the scope of common law rights in sound recordings had been subject to “more than a century of judicial silence,” and the lack of any prior claim of a performance right by sound recording owners was “in many ways inexplicable,” Judge McMahon declined to infer that no such right existed. Rather, “years of judicial silence implies exactly the opposite” because “no New York case recognizing a common law copyright in sound recordings has so much as suggested ' that the bundle of rights appurtenant to that copyright was less than the bundle of rights accorded to plays and musical compositions.” Further, the district court found that “modern federal law supports the notion that an express carve-out is required in order to circumscribe the bundle of rights appurtenant to copyright,” citing the statutory carve-out of performance rights that Congress imposed on sound recordings when first extending federal copyright protection to them in 1971.

Sirius raised several policy objections to Judge McMahon's conclusion, but she found them unpersuasive. First, Sirius asserted that because these older sound recordings already exist, recognizing a “new” right in them would not serve the purpose of providing an incentive to create. But, “Congress has rejected that perfectly sensible argument time and time again,” Judge McMahon wrote, and “I see no reason to conclude that either statutory or common law copyright any longer focuses on fostering future creativity, as opposed to rewarding past creativity.”

Second, Sirius claimed that the recognition of a public performance right in common law recordings would upset the expectations of investors. Again, the district judge was unmoved because “investors always assume the risk that whatever economic model they are working off will turn out not to be correct. ' All Flo and Eddie seeks here is the right to receive royalties under state law for digital broadcasting of its pre-1972 recordings ' hardly a shocking development in the world of digital broadcasting.” Judge McMahon concluded by recognizing that “Sirius may well be correct that a legislative solution would be best. But the common law, while a creature of the courts, exists to protect the property rights of the citizenry. And courts are hardly powerless to craft the sort of exceptions and limitations Congress has created.”

Under the so-called Dormant Commerce Clause doctrine, the U.S. Constitution prohibits states from interfering with interstate commerce by “directly regulating commerce in other states.” Sirius alleged that the recognition of a sound recording performance right under New York common law would constitute such “direct regulation,” but the district court found otherwise.

The California district court presiding over one of the companion Flo & Eddie cases had held in September 2014 that Congress expressly permitted states to regulate in this area when it exempted common law sound recording copyright from federal preemption in '301(c) of the 1976 Act. (In this California case, the district court ruled that Flo & Eddie have a state statutory public performance right and a viable common law misappropriation claim.)

Judge McMahon, however, disposed of the Dormant Commerce Clause argument on a different basis: “New York does not 'regulate' anything by recognizing common law copyright. The issue is nothing more than a red herring.” Instead, the she found common law copyright protection to be merely a “general” law “prescribing the liabilities or duties of citizens of a state ' Sirius has not cited, and the Court has not found any cases holding that a state's general property law and associated liability principles could, in and of themselves, violate the Dormant Commerce Clause.”

Sirius retained new counsel and filed a motion for reconsideration in December 2014. But the New York federal court denied the motion, in an opinion that frequently expressed frustration with Sirius' perceived attempt to re-litigate the merits of the court's summary judgment decision. Specifically, Judge McMahon found that the additional authority cited by Sirius, RCA v. Whiteman, 114 F.2d 86 (2d Cir. 1040), was both procedurally and substantively irrelevant, observing that the 75-year-old case was not briefed by either party during summary judgment, is “no longer good law” and in any event did not address the question of performance rights in sound recordings per se. Instead, the case assumed arguendo that New York State recognized a common law right in sound recordings, and considered whether any such right was divested by its public performance. Judge McMahon characterized Sirius' contrary construction as “contorted” and completely at odds with “every court and authority that has considered the issue.”

Judge McMahon also held that Sirius' request for reconsideration of the Dormant Commerce Clause ruling was “entirely without merit.”

Protecting Flo & Eddie from the theft of its property is not “regulation”; a simple example illustrates the point. Suppose, instead of stealing Flo & Eddie's property rights in the sound recordings, someone stole its company car, which was then used to operate an interstate taxi service. The Dormant Commerce Clause obviously would not bar Flo & Eddie from maintaining an action at common law for conversion of the car. And that would be true even though the action, and the return of the car and the end of the taxi service, would affect interstate commerce. According to Flo & Eddie's argument, state laws barring theft do not violate the Dormant Commerce Clause.

Overall, the New York district court found that Sirius' motion for reconsideration “does nothing but raise red herrings.”

Judge McMahon recognized in February 2015, in granting Sirius' motion for an interlocutory appeal to resolve the “controlling question of law” as to the precise contours of the New York common law protection for pre-1972 sound recordings: Does that protection extend to an exclusive right of public performance? Finding this issue to have precedential value for a large number of cases, the district judge also characterized it as “a difficult legal question about which reasonable minds can differ:” As to the Dormant Commerce Clause argument, however, the district court declined to certify the question because it did “not believe there is a substantial ground for a difference of opinion as to that issue.”

Conclusion

The Flo & Eddie decision is heading to the Second Circuit, but it is likely that the performance rights issue will be resolved by the New York Court of Appeals. The Southern District cannot directly certify a question to that court, but the Second Circuit can, and it has done so fairly recently on an issue involving common law copyright in pre-1972 sound recordings. (See, Capitol Records v. Naxos of America, 4 N.Y.3d 540 (2005).) Thus, Judge McMahon observed at several points that the Second Circuit would probably forward the question to the New York Court of Appeals once given the opportunity. The Second Circuit could, however, also decide to take on the Dormant Commerce Clause question that the Southern District did not certify, whether or not the common law issue is referred to the New York Court of Appeals.

The same potential range of outcomes would likely also be possible in California and Florida, where the companion cases are pending, giving up to six appellate courts the chance to weigh in. The permutations raise the possibility of a circuit split that could bring another fascinating copyright issue to the attention of the Supreme Court. As they say in radio land, stay tuned.

Robert W. Clarida is a partner of Reitler, Kailas & Rosenblatt in New York City, and author of Copyright Law Deskbook (BNA). Robert J. Bernstein practices law in The Law Office of Robert J. Bernstein in New York City.