Pre-1972 sound recordings are back in the news. Yesterday, the US Court of Appeals for the Second Circuit decided to defer its consideration of an appeal of a District Court’s decision that NY law included a public performance right for pre-1972 sound recordings. The Court deferred its decision until it can get a definitive answer as to whether or not such a right exists under NY state law. To get that definitive answer, the Court of Appeals referred the question to the NY State Court of Appeals (the highest court in New York State) asking it to issue an opinion as to whether the right exists.   Reading the order referring the case to the NY state court, there are a number of interesting issues addressed, including a discussion that could help decide the ramifications for over-the-air broadcasters who play these recordings.

First, we should provide a reminder about what the case here is all about. This case was brought by Flo and Eddie, members of the 1960s band The Turtles, who alleged that Sirius XM (and Pandora in a separate case) owed them royalties for playing pre-1972 sound recordings on their music services (see our article on the filing of the suit, here). Pre-1972 sound recordings first copyrighted in the United States are not covered by Federal law (see our article here and here about a Copyright Office inquiry on whether they should be brought under Federal law). While most states have laws prohibiting the reproduction of those recordings (e.g. prohibiting bootlegging of the recordings), none has an explicit statutory grant of a public performance right such as that collected by SoundExchange for post-1972 works. Sirius XM has thus excluded performances of pre-1972 sound recordings from the royalties that it has paid to SoundExchange (with the blessing of the Copyright Royalty Board in their last proceeding, see our story here). And allegedly Pandora has done the same. In this case, Flo and Eddie argued that in fact state law did convey a public performance right in sound recordings. Many observers (including this author) suggested that this argument would not succeed given that finding that a general performance right existed would be contrary to US law, and could subject all sorts of businesses that have never paid royalties for public performances of sound recordings, from over-the-air radio stations to bars and restaurants, to a performance royalty only when they played oldies. Nevertheless, Flo and Eddie were successful with their arguments in lower Federal Courts in California and New York (see our articles here and here), but a court in Florida denied their claims, finding that there is no performance right in pre-1972 sound recordings in that state (see our article here). The Court of Appeals decision yesterday was on the appeal of the NY decision referenced above. Why did the Court of Appeals need to send this case to the NY state court system?

Both the Court of Appeals and the District Court are federal courts which sometimes hear cases that involve state law issues, like this particular case. While the federal courts can look to state law precedent to determine what the state law is, and sometimes hazard educated guesses as to what the state law is to the extent that precedent is not crystal clear but still suggestive of a result. But there are times when that state law is so unclear that even informed guesses cannot be made. In those cases, the federal courts need to seek guidance from the local courts, as those courts are the ones who are actually charged with determining what the law is in a particular jurisdiction. So, here, as the federal courts could not find any definitive precedent on whether there is a public performance right in NY, they decided to ask the NY court for an interpretation.

In doing so, however, they made clear that the NY courts need to carefully contemplate their decision and the impact that the decision might have. The decision noted that a general public performance right could impact terrestrial broadcasters, and also recognized that, were the NY Court to find that a right existed, it would also need to determine the limits to that right. While that discussion arose in assessing an argument raised by Sirius XM as to whether any state law performance royalty could have a prohibited impact on interstate commerce, it really raises for the NY Court all of the issues many commentators have raised before about judicial the discovery of state law performance rights – any judicial determination that a right exists would not contain the exceptions and limitations that are normally spelled out by the legislature in adopting any performance right, and wouldn’t provide any mechanism for the determination of rates and mechanisms for payment – all hallmarks of the federal system for post-1972 sound recordings and for most other performance rights. Thus, many contend that any decision as to whether pre-1972 sound recordings have a performance right attached are best left to legislative, not judicial, decisions. We will see what the NY court decides on this issue in the coming months.

One other pre-1972 issue bears discussion, while we are on the topic. Recently, copycat lawsuits have been brought against other music services on claims that royalties are owed for pre-1972 performances. In fact, certain broadcasters have been sued in California and New York based on the District Court cases. In some of those cases, attorneys for one broadcast company have claimed that their stations are not playing pre-1972 sound recordings at all (see press reports here and here). This company claims that all of their music comes from digitized recordings, remastered from the original analog recordings, and these digital works are “derivative works” (a new copyrighted work that reinterprets the original copyrighted material – usually used for works like a movie script based on a book, or a sequel using copyrighted elements from the original work, or similar new works based on a copyrighted original) entitled to their own copyright – and those new copyrights would have arisen after 1972. Why wasn’t that issue raised in the Sirius XM case?

The issue is not a new one, and it has been debated among copyright geeks for years. But it likely was not raised in the Sirius case because, as we noted above, Sirius itself was not treating these recordings as post-1972 recordings so that it could exclude them from payments made to SoundExchange (as allegedly was Pandora according to the Flo and Eddie lawsuits). If these songs were in fact new copyrighted works when they were digitized, then they should not have been excluded from the SoundExchange payments. A radio broadcaster, however, had no obligation to SoundExchange for their over-the-air broadcasts. And many radio broadcasters, with a smaller monthly obligation to SoundExchange for their streaming than the big digital music players, don’t go to the time and trouble of segregating out pre-1972 recordings, instead paying on everything that they play. So, a broadcaster might be safe in raising this argument, while the big digital services would have stayed away from that issue. In deciding this issue, the courts will be faced with deciding whether the digitization is a creative work entitled to copyright protection in and of itself.

I’ll be moderating a panel on music royalty issues at the RAIN Summit West in Las Vegas on Sunday, where this topic is bound to come up. The panel will feature representatives from SoundExchange, BMI and the NAB. So if you are in Las Vegas, come on by and hear our discussion of music royalty issues at the Summit.