In what many industry insiders are declaring “historic,” on September 22, 2014, the United States District Court for the Central District of California ruled that Sirius XM Radio, Inc. (“Sirius”) is liable to Flo & Eddie Inc. (“F&E”) for publicly performing 15 separate pre-1972 sound recordings owned by F&E.  The ruling is important because federal copyright law “exclusively governs rights attendant to works of authorship in many areas; however, it explicitly leaves certain segments of copyright law open to state regulation.”  One of those segments involves “sound recordings fixed before February 15, 1972.”  Accordingly, the issue of whether or not an entity must pay royalties for publicly performing songs pre-dating 1972 is governed by state law.  In this instance, the Court found that California State law provides that intellectual property rights applicable to sound recordings extend farther back in time than that provided for under federal law.

The Sirus Facts

F&E is a corporation created and owned by two founding members of the music group “The Turtles.”  F&E owns all rights in and to The Turtles master sound recordings.  Over the last four decades, F&E has licensed The Turtles master sound recordings for public performances to a number of media outlets, but never to a radio station, whether online, digital or otherwise.  Nevertheless, because The Turtles’ songs were recorded in the 1960s and early 1970s, radio stations have played their songs without obtaining a license from F&E believing that they did not have to pay a royalty for such use under applicable law.  F&E have been aware of public performances of The Turtles songs on terrestrial, satellite and streaming radio, yet have never sent cease and desist letters or sued in an effort to enforce their rights.  That is, until last year, when F&E sued Sirius for violating its copyrights in and to The Turtles’ songs.

The Law

In 1976, the United States Congress passed the Federal Copyright Act (the “Act”).  The Act generally governs all copyrights in the United States.  However, the law contains a provision which states: “[w]ith respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any state shall not be annulled or limited by this title until February 15, 2067 . . . .  [N]o sound recording fixed before February 15, 1972 shall be subject to copyright under this title[.]”  Loosely translated, this means that any music recorded prior to 1972 is not protected by the Act.  However, to the extent that states wish to or have afforded copyright protection to such sound recordings, entities may be subject to damage awards granted to copyright holders under applicable state law.

The Sirius Ruling

The Court found Sirius liable to F&E for copyright damages under a California State copyright law.  The California law provides, in part, that “[t]he author of an original work of authorship consisting of a sound recording initially fixed prior to February 16, 1972, has an exclusive ownership therein until February 15, 2047.”  The statute carves out a lone exception for the right to make “covers,” that is a sound recording based on a copyrighted recording, provided that sounds are produced independently rather than recapturing the actual sounds contained in the original copyrighted recording.  In the case at issue, the Court found that as “exclusive owners,” F&E had the right to receive royalties under the California statute for any public performance of their pre-1972 sound recordings.  As such, the Court ruled that Sirius is liable under California law for copyright infringement for failure to pay royalties for the use of recordings made before 1972.  Sirius is expected to appeal the ruling.  The next phase in the proceeding is a trial to set damages, which will be scheduled next month.

Impact of the Ruling

While this case could have wide implications for the digital music industry, please bear in mind that the Court’s ruling is limited to an interpretation of California State statutory law.  However, the decision demonstrates that courts can find that intellectual property rights exist in pre-1972 sound recordings under various state statutes or common law rulings.  Accordingly, service providers like Sirius, Pandora and Spotify may find themselves owing significant royalties to artists, a financial eventuality that may undermine their very existence.