The Recording Industry Association of America reported that in 2013, the United States music industry was stable at $7 billion in revenue, with music streaming revenue representing $1.4 billion of that total.1 The growth in music streaming services and the song suggestion capabilities built into the services (e.g., Pandora’s Music Genome Project) have increased popularity among listeners of both old and new songs alike. In fact, according to IBISWorld, in the Internet radio broadcasting industry, 13.5 percent of the songs played are in the “popular 1960s, 1970s and classic rock” categories.2
This continuing popularity of older works and the ready availability of such songs on streaming services has also led to great interest from artists and music publishing companies regarding unpaid royalties owed to artists that recorded works prior to February 15, 1972 (pre-1972 recordings), which are ineligible for copyright protection under federal law. In September 2014, Judge Philip Gutierrez granted summary judgment to the founding members of the music group the Turtles in the lawsuit they brought against SiriusXM Radio for unpaid royalties on their 100 original master recordings, which are all pre-1972 recordings.3 While damages in the matter have yet to be decided, this ruling opens the door for more unpaid royalties litigation from other owners of pre-1972 recordings.
This article will discuss: 1) the evolution of copyright law as it relates to pre-1972 recordings, 2) certain of the current cases brought by copyright owners alleging unpaid royalties on these recordings, 3) the expected magnitude of such unpaid royalties, and 4) potential red flags to be aware of when attempting to perform an accounting of unpaid royalties on these pre-1972 recordings, which are “sold” in both physical and digital form.
The first federal copyright statute was enacted in 1790; however, it afforded no protection to music or sound recordings. Music was first afforded federal copyright protection under the Copyright Law of 1831. This protection, however, was limited to music compositions, referring only to the actual notes written on a page, as opposed to a recording or other embodiment. The limited scope of music protection was affirmed in 1908 in White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1 (1908), when the United States Supreme Court found that piano rolls, a medium used at the time, were not copies of music compositions and as such were not protected under federal law.
Congress overhauled copyright law with the Copyright Act of 1909. Among other changes, this legislation provided federal copyright protection to original works when those works were published and affixed with a notice of copyright. The law, however, never specifically mentioned and thus did not apply to sound recordings. In its 1955 ruling in Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955), the Court of Appeals for the Second Circuit confirmed that sound recordings were not protected under this federal statute.
As recording technology improved, opportunities for music piracy increased. The development and growing use of audio cassettes/cassette tapes significantly increased the ease with which recordings could be pirated and also decreased the cost of such piracy. In response to these realities of the music marketplace, Congress passed the Sound Recording Amendment of 1971. The law became effective on February 15, 1972, and provided federal protection against the unauthorized duplication of sound recordings. Protection under the new law, however, did not extend to works that were fixed or recorded prior to February 15, 1972.
The Copyright Act of 1976 reflected another major modification to United States copyright law, but with regard to sound recordings, it adopted the same protections provided by the Sound Recording Amendment of 1971. Various amendments have subsequently been passed by Congress; however, pre-1972 recordings remain without federal copyright protection.
Because of the lack of protection under federal law, parties have looked to state laws for protection against unauthorized duplication of pre-1972 recordings. New York and California were the first states to pass statutes criminalizing the unauthorized duplication of sound recordings. In its 1973 ruling in Goldstein v. California, 412 U.S. 546 (1973), the United States Supreme Court found that because Congress had failed to grant protection to pre-1972 recordings, state laws could provide such protection. The Court reasoned that because the Constitution did not grant Congress the exclusive power to protect copyrights, the states had the power to do so as long as state laws were not in conflict with federal law. Subsequent to the Supreme Court’s ruling, nearly every other state has passed anti-piracy laws.
In addition, the RESPECT Act4 was introduced in the U.S. House of Representatives in May 2014. This legislation would make any performance or reproduction of pre-1972 recordings subject to statutory royalty payments. It does appear the law would not be retroactive, meaning that owners of pre-1972 recordings may still be able to sue in state courts over unlicensed use of works prior to the effective date of the law.
Flo & Eddie Inc. (“Flo & Eddie”) is a corporation controlled by two of the founding members of the music group the Turtles. Flo & Eddie owns the rights to the Turtles’ master recordings, which were all recorded prior to February 15, 1972.
In August 2013, Flo & Eddie filed suit against SiriusXM Radio in Los Angeles Superior Court. Flo & Eddie claimed that SiriusXM Radio has been publicly performing (through broadcasting and streaming) and reproducing its recordings without authorization, in violation of California copyright law. Moreover, Flo & Eddie argued that each unlicensed use constitutes misappropriation, conversion, and an unlawful and unfair business practice under California’s unfair competition law. After SiriusXM Radio filed a notice of removal, the case was moved to the United States District Court for the Central District of California. Flo & Eddie subsequently filed a motion with the district court for summary judgment with regard to liability.
With regard to the public performance claim, the parties did not dispute any of the material facts. However, SiriusXM Radio contended that Flo & Eddie’s rights related to their copyright ownership of pre-1972 recordings do not include the exclusive right to publicly perform the recording. As such, SiriusXM Radio argued that after lawfully purchasing a copy of a Flo & Eddie recording, SiriusXM Radio has the right to broadcast and stream the recording to its paying audiences. Therefore, the dispute, as it related to the public performance claim, hinged on whether ownership of a pre-1972 recording includes the exclusive right to publicly perform the recording.
California Civil Code section 980(a)(2) specifically addresses pre-1972 recordings, stating 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.” The statute identifies one exception: Ownership does not include the exclusive right to make “covers” (i.e., recordings with new vocals and/or instruments). The court therefore reasoned that because the legislature expressly stated this single exception, it intended to include all other rights that could be attached to intellectual property in the statute.
With regard to the public performance claim, the court granted summary judgment in favor of Flo & Eddie on copyright infringement, as well as on Flo & Eddie’s claims related to misappropriation, conversion, and unlawful conduct in violation of California’s unfair competition law. The court denied summary judgment on Flo & Eddie’s claims related to the reproduction of its recordings because material facts were still in dispute.
In addition to its suit against SiriusXM in California, Flo & Eddie has filed a number of other lawsuits related to pre-1972 recordings. In recent months there has been significant activity in several of these matters.
In January 2015, New York Federal Judge Colleen McMahon rejected defenses offered by SiriusXM, but at the same time also refused Flo & Eddie’s request for summary judgment. SiriusXM responded by requesting the immediate certification for interlocutory appeal of the ruling. Judge McMahon certified the appeal in February, staying the case pending the appeal’s outcome. In April, the 2nd Circuit heard the appeal, however it was unclear if the 2nd Circuit would rule on the issue itself, or whether it would certify the issue for a New York State appeals court, since the issue is a matter of New York law.
In February, California Federal Judge Philip Gutierrez issued an order indicating that while Pandora’s streaming service qualified as a protected free-speech activity, Flo & Eddie’s claim had sufficient merit to survive summary judgment. Pandora immediately appealed to the 9th Circuit. In May, Judge Gutierrez granted class certification to Flo & Eddie in the California suit against Pandora, however, he stayed the case in June to give Pandora the opportunity to seek an appeal of his decision to certify the class.
In June, Florida Federal Judge Darrin Gayle ruled against Flo & Eddie and in favor of SiriusXM. Judge Gayle found that Florida law did not provide the kind of unfettered rights to public performance that Flo & Eddie claim in their suit. In explaining his opinion, Judge Gayle indicated that California and New York are “the creative centers of the nation’s art world” and as such they have developed their laws accordingly. He indicated that a California statute expressly protects pre-1972 recordings and that New York has more developed common law related to the issue. He reasoned that because Florida lacked similar legislation and similar common law related to the arts, SiriusXM was not obligated to pay for its use of the pre-1972 recordings.
Pandora Media Inc. (“Pandora”)” was sued for copyright infringement in the New York Supreme Court in April 2014 by Capitol Records, Sony Music Entertainment, UMG Recordings, Warner Music Group, and ABKCO Music & Records. The complaint filed in this matter includes a list of over 1,400 pre-1972 recordings that are allegedly being infringed by Pandora, such as the Beatles’ “Hey Jude,” Aretha Franklin’s “Respect,” Bob Dylan’s “Like a Rolling Stone,” Elvis Presley’s “Hound Dog,” and the Jackson 5’s “ABC.” In addition to compensatory and punitive damages, the plaintiffs seek an injunction to prevent Pandora from reproducing and streaming pre-1972 recordings.5
In its answer to the complaint, Pandora admitted to copying the record company plaintiffs’ pre-1972 recordings to its servers, which are located outside the state of New York, and streaming them to Pandora users within the state of New York. Pandora also stated that up until February 2012, it did pay royalty fees for streaming pre-1972 recordings owned by the record company plaintiffs.
Several of the plaintiffs in the New York matter against Pandora filed a similar suit against SiriusXM in California. This matter settled in June when SiriusXM agreed to pay $210 million to Sony Music Entertainment, UMG Recordings, and Warner Music Group. Estimates indicate that the settlement could cover approximately 80 percent of the pre-1972 recordings that SiriusXM played for listeners. The settlement would cover past use and continued use through 2017, when a new deal must be struck with each label.
Soon after the settlement, attorneys for Flo & Eddie filed a response with the court in an attempt to stop what they referred to as a “brazen attempt” to exclude them from their own victory. They requested an injunction prohibiting SiriusXM from paying the settlement to the labels. Additionally, they requested that the settlement be deposited with the court and only released after fees for class counsel and a proper deal for all class members are resolved. They have requested further discovery to resolve these issues.
The potential magnitude of unpaid royalties on pre-1972 recordings is quite large. As discussed at the beginning of this article, popular 1960s, 1970s, and classic rock songs represent almost 15 percent of songs played by Internet radio broadcasters. This trend has been in place for several years — the NPD Group has reported that classic rock ranked in the top three places among buyers and streamers during 2011-2013. In addition, sales of vinyl records increased faster than other forms of media and were up 33 percent in 2013 over the prior year.
Whether considering streaming or record/CD sales, any investigation into unpaid royalties due to the owners of pre-1972 recordings must take into account the varying forms of media on which such recordings can be sold, whether CDs, vinyl, downloads, or streaming. The analysis of unpaid royalties should also capture all streaming service revenue earned that is related to these recordings. Although Pandora has some 70 percent of this market, there are other competitors as well. Further, royalties may or may not be due based on where the servers of the streaming service are located (i.e., in the United States or abroad). Finally, the royalty investigation should keep in mind that Internet radio royalties are paid on a per-play basis (as set by the Copyright Royalty Board of the Library of Congress in May 2007).
The pre-1972 recordings discussed in this article have found a generation of new fans through digital downloads and streaming services. Owners of the copyrights on these works have had an uphill battle to collect royalties, but state law may finally be uniting these copyright owners with the royalties they deserve.