USCA Ninth Circuit, February 27, 2008
In this action, Sybersound, a karaoke record producer, brought an action against its competitors that also produce and sell karaoke records, alleging Lanham Act claims for unfair competition, copyright infringement of Sybersound’s copyrights in nine songs and other related claims of unfair competition stemming from the defendants’ alleged incorrect certification of their rights to exploit the copyrighted songs at issue.
All parties primarily sell karaoke records to a group of distributors and retailers that resell the records to the public. Sybersound alleged that the defendants misrepresented to customers that their karaoke records were 100% licensed and that all applicable royalties had been paid.
Sybersound claimed that the defendants engaged in unfair competition in violation of the Lanham Act by violating copyright laws, thereby paying less for royalties and licensing fees to produce their products than Sybersound did to produce its own, and by misrepresenting their compliance with the customers’ licensing policies, which permitted them to sell pirated records at prices that undercut Sybersound’s own prices.
The court rejected Sybersound’s arguments, and held that construing the Lanham Act to cover misrepresentations about copyright licensing status would allow competitors engaged in distribution of copyrightable materials to litigate the underlying copyright infringement when they had no standing to do so because they were nonexclusive licensees or third party strangers under the copyright law.
Sybersound also alleged that several of the defendants infringed Sybersound’s copyrights in nine songs by producing karaoke records of those songs without obtaining a license from Sybersound or its copyright assignor, TVT Music Publishing. Sybersound claimed to have acquired an ownership interest in the nine songs by entering into a written agreement with TVT, which allegedly made Sybersound “an exclusive assignee and licensee of TVT’s copyright interest for purposes of karaoke use, and also the exclusive assignee of the right to sue to enforce the assigned copyright interest.”
The court explained that Sybersound’s claim is flawed because TVT is not the exclusive owner of the karaoke use interest in the underlying copyrights. TVT co-owned the nine songs at issue together with a number of third parties. Thus, the court reasoned that, unless the other co-owners of the copyright joined in granting an exclusive right to Sybersound, TVT, acting solely as a co-owner of the copyright, could grant only a non-exclusive license to Sybersound.
The court further explained that, because TVT was only a co-owner of the rights to the nine songs, TVT’s assignment could only transfer a non-exclusive license to Sybersound. Therefore, the court concluded that because Sybersound was neither an exclusive licensee nor a co-owner in the nine copyrights, it lacked standing to bring copyright infringement claims based on the nine songs.
In addition, the court also dismissed Sybersound’s state law claims on the grounds that, if it were to permit Sybersound’s state law claims based on incidences of copyright infringement to proceed, Sybersound would be litigating a third party copyright infringement claim under the guise of state law and in order to prevail Sybersound would have to prove that copyright infringement occurred. Sybersound’s RICO claim was also dismissed, based in part on similar reasoning.