BY:Neil J. Rosini, Michael I. Rudell
mik(Originally published in the Entertainment Law column in the New York Law Journal on January 23, 2015)
For about a century it’s been an accepted fact of life that radio stations do not pay royalties for analog transmissions of sound recordings — even while paying for public performance of the musical compositions embodied in those sound recordings. To this day, neither federal law nor state law requires any payment for analog transmissions of sound recordings that came into being on or after February 15, 1972. Sound recordings created on that day and after became eligible for federal copyright protection in the U.S., but without the exclusive public performance right that generates fees for owners of musical compositions from radio transmissions.
Owners of sound recordings with federal copyright protection (i.e., made on or after February 15, 1972) did acquire a limited exclusive public performance right 23 years later, but only for digital broadcasts as distinguished from analog. Also, certain broadcasters of non-interactive digital audio (like Sirius) became eligible for compulsory licenses to transmit federally-copyrighted sound recordings, subject to payment of statutory royalties.
But the rules are different for sound recordings made before February 15, 1972 (which we’ll call “pre-1972 sound recordings” for convenience). Those recordings exist without federal copyright protection and are not subject to Copyright Act provisions applicable to sound recordings made later, including the just-mentioned compulsory license for some digital transmissions, mechanisms for authors and successors to terminate grants of rights, and the duration of copyright protection. Instead, the rules that govern pre-1972 sound recordings come from a patchwork of state statutes and common law that can vary from one state to another.
That distinction lies at the heart of a recent Southern District decision by Judge Colleen McMahon, Flo & Eddie, Inc. v. Sirius XM Radio, Inc., relating to pre-1972 sound recordings by the 1960s group, The Turtles, including their hits “Happy Together” and “It Ain’t Me, Babe”. Consistent with an earlier decision in a suit against Sirius by Flo & Eddie in California, the digital radio service was taken to task for treating pre-1972 sound recordings the same way analog AM and FM stations treat pre-1972 sound recordings. That is, Sirius asked no permission and made no payment for their transmissions.
In denying a motion by Sirius for summary judgment, the court’s decision upends settled expectations of who must pay for what in the broadcast music industry — at least in New York State. And why owners of sound recordings didn’t attempt to enforce their rights before is, in the words of Judge McMahon, “in many ways, inexplicable.”
What Sirius Does
Sirius is in the satellite radio business, providing digital audio content to paying subscribers through digital radios installed in their vehicles, through computers and mobile devices via the internet, and through Dish Network set-top boxes. It offers recorded music on dozens of channels, many of which feature recordings from the 60s and 70s, including some by The Turtles, owned by the plaintiff.
According to the decision, Sirius stores its permanent digital music library on databases located in three cities. It also makes onsite backup copies, offsite disaster recovery copies, and library subsets in six other cities. It makes additional copies that are deleted after broadcast on a “play-out server.” A third party streaming service that delivers Sirius content, makes additional temporary copies; more copies yet are made for a time-shifting feature and by another third party to maintain a five hour cache of Sirius programming. 
Sirius does all this without obtaining a license to copy most of the pre-1972 sound recordings in its databases, or to perform them, or to authorize third parties to stream them.
The plaintiff Flo & Eddie is owned and controlled by two of the founding members of The Turtles, Howard Kaylan and Mark Volman. It sued Sirius for common law copyright infringement and unfair competition under New York law because of Sirius’s unauthorized reproduction and public performance of sound recordings it owns by The Turtles.
Why State Law Controls
To explain why Flo & Eddie sought relief in federal court under state law rather than federal copyright law, the court began its analysis by comparing the different treatment under U.S. law given to musical compositions, which have enjoyed federal copyright protection since 1831. When radio stations publicly perform musical compositions by broadcast, they pay royalties to the copyright holder, which are typically collected and distributed by professional clearinghouses (like ASCAP, BMI and SESAC).
In 1971, when Congress first made sound recordings created on or after February 15, 1972 eligible for federal statutory copyright protection, it withheld the right of public performance from holders of those copyrights. They would enjoy exclusive rights of reproduction and distribution under the Copyright Act – just like owners of musical compositions – but while the latter earned fees for pubic performances, owners of sound recordings with federal copyright protection could not. Accordingly, radio stations that made public performances of federal copyright-protected sound recordings without a license and without paying for the privilege, continued to do so. And except for bestowing in 1995 the exclusive right to perform federally copyright-protected sound recordings “publicly by means of a digital audio transmission,” Congress has not tinkered with this unequal treatment of sound recordings at any time since.
As already noted, pre-1972 sound recordings, were completely excluded from the federal copyright scheme and remain so. Instead, Congress expressly left their protection to the states, which in New York, comes in the form of common law copyright and the law of unfair competition.
Before the 1976 Copyright Act went into effect in 1978, authors of original material enjoyed protection in New York State under common law copyright until they published their works or registered them for federal copyright protection. After that, federal copyright took over and pre-empted state regulation. The 1976 Copyright Act abolished common law copyright for musical compositions, plays, movies, novels, and other types of works, but not for sound recordings. To fill the void, common law copyright survives in New York for pre-1972 sound recordings.
Similarly, state protection under the law of unfair competition –which encompasses “any form of commercial immorality.” — was not pre-empted by federal copyright law and survives for pre-1972 sound recordings in New York. Courts in the state have recognized two forms of common law unfair competition: palming off (the sale of goods of one manufacturer as those of another) and misappropriation (which “usually concerns the taking and use of the plaintiff’s property to compete against the plaintiff’s own use of the same property.”)
Flo & Eddie argued that New York State’s common law copyright protection, which extended to pre-1972 recordings like The Turtles recordings, as well as state law of unfair competition, grounded in misappropriation, prohibited both reproduction and public performance by Sirius without a license and payment of fees. The court agreed.
Sirius’s Unsuccessful Arguments
Sirius did not contest Flo & Eddie’s claim to possess a common law copyright in The Turtles recordings, which confers under New York law an exclusive right to reproduce them. Whether that common law protection includes a right of public performance was characterized by the court as “a much thornier question—one of first impression, and one that has profound economic consequences for the recording industry and both the analog and digital broadcast industries.”
The court noted that common law typically protects against unauthorized reproduction, distribution, and performances and that New York courts at one time afforded public performance rights to holders of common law copyrights in plays and films. It concluded that if presented with the question, the New York Court of Appeals would find that an exclusive right of public performance of sound recordings under common law copyright applied to pre-1972 sound recordings.
The court rejected on several grounds an argument by Sirius that “case law contains no discussion of public performance rights in sound recordings.” For one thing, the New York State Court of Appeals decided theCapitol Records, Inc. v. Naxos of America, Inc. in 2005 in favor of a common law copyright holder “after more than a century of judicial silence,” thereby demonstrating that nothing could be inferred from the lack of a precedent. To the contrary, no New York case recognizing a common law copyright in sound recordings has suggested that the same public performance rights accorded to plays and musical compositions were withheld from owners of sound recordings.
The court did not accept Sirius’s argument that unfair competition would require “distribution” of property, and even if it did, the court considered public performance to be a form of distribution, at least under New York common law. Nor did the court agree that the plaintiff would have to show actual competition between the parties because it’s no longer a prerequisite to sustaining an unfair competition claim under New York law. Further, the plaintiff demonstrated competitive injury in the form of lost sales and potential licensing fees, even though evidence of the extent of loss had yet to been developed.
Sirius’s attempt to invoke public policy also failed. The court concluded that the “common law … exists to protect the property rights of the citizenry” and that “general principles of common law copyright dictate that public performance rights in pre-1972 sound recordings do exist.”
Nor did Sirius’s laches defense fare better because it was held to be unavailable in an action at law seeking money damages commenced within the period of limitations (three years for the unfair competition claim and six years for common law copyright). Injunctive relief made “in aid of or to enforce a legal right” during the limitations period also would be available.
Sirius’s fair use defense under New York law – which was assumed by both parties and the court to operate similarly to the federal defense – was rejected because its use was commercial and not transformative; The Turtles works are “creative”; not even minimal copying was allowed under the circumstances; and “common sense” dictated that Flo & Eddie would suffer market harm from Sirius’s exploitation of its property “unchanged and for a profit.” In particular, widespread public performance of sound recordings – “the conduct in which Sirius is engaged” – could easily satisfy public demand and diminish sales of records and downloads of Turtles recordings.
Not even the Dormant Commerce Clause of the United States Constitution could be roused to defend Sirius. Sirius argued that the right of Congress to regulate commerce includes a negative or “dormant” implication that states may not interfere with interstate commerce. The court held, however, that New York does not “‘regulate’ anything by recognizing common law copyright,” which is merely a “property law principle  that establish[es] liability for infringing another party’s copyright.”
(The court also found that some but not all of the copies made by Sirius infringed the plaintiff’s exclusive right under common law to make reproductions. Because the exclusive right of owners to reproduce pre-1972 sound recordings had already been underscored by the New York Court of Appeals in Naxos, this result was not as notable — except that the rule was applied to the copies made to facilitate broadcast transmissions by Sirius and others rather than for distribution as copies to the public.)
Given the complexities of applying common law from state to state, and the burdens of obtaining individual licenses recording by recording, recognition of the public performance right could make broadcasts of pre-1972 recordings “altogether unavailable,” as Sirius argued on internet and satellite radio as well as AM and FM. More likely, as the court suggested in its decision, the law will change to make use of pre-1972 sound recordings as easy as those made on and after February 15, 1972. For example, New York courts could limit public performance rights in pre-1972 sound recordings to those conferred on holders of federal copyrights in sound recordings, which at least would rescue analog radio in the state. Even federal copyright law might finally open its arms to pre-1972 sound recordings and pre-empt state law protection of them, too.
 By “sound recordings” we refer to the recording fixed in a medium for playback that embodies a performance of a musical composition. By “musical composition,” we refer to a song that can be represented in musical notation. This article is about sound recordings – not musical compositions.
 By “non-interactive” is meant a member of the public cannot receive a transmission of a program specially created for the recipient or a transmission of a particular sound recording on demand. See 17 U.S.C. §114(j)(7).
 Congress declined to preempt whatever protection was provided to pre-1972 recordings by state law until February 15, 2067. 17 U.S.C. §301(c).
 Flo & Eddie, Inc. v. Sirius XM Radio, Inc., et al., CV 13-5784 CM, S.D.N.Y., November 14, 2014.
 Flo & Eddie also has commenced actions against Sirius in federal court in California, which has granted its motion for summary judgment as to liability for unauthorized public performance of pre-1972 sound recordings largely on the basis of California statutory law, Flo & Eddie Inc. v. Sirius XM Radio Inc. et al., No. CV 13-5693 PSG (C.D.Ca.), September 22, 2014; and in Florida, where its motion for summary judgment was still pending at the time this article was written. Flo & Eddie, Inc. v. Sirius XM Radio, Inc., et al., No. CV 13-23182 KMM (S.D. Fla.).
 Buffering – “storing a small segment of audio or video content in computer memory to ensure smooth playback” – also occurs without a license at several points in the Sirius delivery system and Sirius also reproduces “tips and tails” of sound recordings in order to record introductions by program hosts. But the court found that buffering “does not constitute infringement under federal law” and that “tips and tails” recordings “may be too fragmentary or ephemeral to constitute infringement.”
 17 U.S.C. §301(c).
 Capitol Records, Inc. v. Naxos of America, Inc., 4 N.Y.3d 540 (2005)