Two years ago, a District Court Judge, in a case brought against a broadcaster alleging that the broadcaster owed money under California state law for playing pre-1972 sound recordings, dismissed the suit finding that the broadcaster was playing digitized versions of those songs, created after 1972, which were covered under Federal copyright law (we wrote about that decision here). Yesterday, the US Court of Appeals for the Ninth Circuit issued its decision reversing the District Court’s opinion and sending the case back to the District Court for additional hearings. The Court of Appeals concluded, for several reasons, that there was likely insufficient creativity in the remastering of the pre-1972 sound recordings to make them new post-1972 copyrighted works and that, even if they were creative enough to merit copyright protection as a derivative work, that did not end the discussion, as portions of the original pre-1972 work were included in any new work and those portions themselves had to be licensed. The decision looks like a simple premise that digitization is no magic bullet to defeat pre-1972 sound recording claims, but there is much to unpack in this seemingly straightforward decision.

First, we need to provide a little background on the litigation over pre-1972 sound recordings. Federal law did not recognize a copyright in sound recordings until 1972. So while the underlying musical composition in a song was protected under Federal law, a recording by a particular band or singer was not. When these recordings were federalized, the Copyright Act explicitly left all rights regarding pre-1972 sound recordings in the hands of state law until 2067. For over 40 years, that quirk in copyright law did not seem to have much relevance, though some US digital music services did not pay royalties to SoundExchange for digital performances of those recordings as they were not covered by Section 114 of the Copyright Act (the section creating the statutory royalty for sound recordings). About 5 years ago, the singers Flo and Eddie (formerly of the 1960s band the Turtles) started bringing lawsuits throughout the country alleging that they were owed performance royalties under state law for these pre-1972 recordings from both digital and analog services (see our article here when the first suit was filed). In most states, those suits have been dismissed with courts finding that state law did not provide for a performance right in these pre-1972 recordings (see our articles about decisions in New York, Florida and Georgia reaching that conclusion). The issue in California, however, is still open. For a deeper dive into these issues, see our article here.

So, when Flo & Eddie brought this suit in California, it was notable when the District Court dismissed the case not because of any finding as to whether or not there was a performance royalty in pre-1972 sound recordings, but instead by finding that the recordings being played by the broadcaster, having been remastered into digital formats, were new copyrighted “derivative works” created after 1972 and thus subject to Federal law. Because it is clear under Federal law that post-1972 sound recordings played on over-the-air radio do not trigger royalty obligations, and because the broadcaster had been paying SoundExchange for these post-1972 works under the statutory license for internet radio under Section 114, the District Court dismissed the lawsuit. That decision was reversed yesterday.

The Court of Appeals looked at precedent defining when a new work derived from an old one embodies sufficient creativity to warrant its own copyright, and determined that digital remastering likely does not provide the originality necessary to warrant that copyright protection. Just adapting a copyrighted work to a new medium does not make the adapted work copyrightable unless it somehow changes the character of the original work. Looking at cases that included creating 3-D costumes from 2-D cartoon characters and digital renderings of the outline of a car, which were found to be insufficiently creative to merit their own copyright, the Court decided that just cleaning up pops and hiss, and otherwise rendering an analog recording into digital, does not make the new digital work copyrightable.

The Court looked at a two part test in making this decision – (1) did the new work change the essential character of the original, and (2) does the new work adversely impact the ability of the original owner to exercise its rights in the original works. Unless both tests are met, the Court said that the new work cannot be independently copyrighted.

Under the first criteria, the Court found that the digital remastering likely does not change the essential character of the sound recording. While the digital recording may improve the sound quality of the original recording and adapt it to the new digital medium, that adaption was not of sufficient originality to make it a new copyrightable work (like making a costume of a cartoon character did nothing more than adapt the original character to a 3-D medium, not in any way enhancing or changing the nature of the work). In assessing this factor, the court looked to the objective of copyright holder in making digital copy – which was to clean and improve the sound for digital playback – not to create a new derivative work. The idea behind the remastering was to replicate the original as much as possible – meaning that it lacked the creativity and originality to merit its own copyright.

Under the second part of test – whether the determination that the new recording would impact the ability of the original copyright holder to exercise its rights in the original – the Court determined that if remasters were determined to be independently copyrightable works, these new works would effectively gut the rights of the original copyright owner. These derivative works would substitute for the original. Any parties wanting to use the recording in the future would come to the holder of the copyright in the digital work, and that would substitute for the rights of the original owner. This is far different from a traditional derivative work like when the author of a book allows his book to be made into a movie, but someone who later wants to make a TV series or play of the story in the book still has to come to the original author.

The Court remanded the case to the District Court with this analysis, and some corrections on evidentiary rulings, instructing the lower court to further review the digital remasters to see if there was in fact any creativity in those remasters that would qualify for treatment as a derivative work entitled to its own Federal copyright. The Court noted that, even if derivative work was found, that derivative work would include elements of original work, and any user would need rights to the original work as well as the derivative work as long as that original work remains protected by copyright (unless the creator of the derivative work was assigned all rights to sublicense the original work with its new work – again a question to be determined by the lower court). While this determination seems somewhat at odds with its findings under the second part of the test for derivative works (if a user who gets rights to the derivative work must also get rights to the original, then it would seem that the creation of the new work does not in fact undermine the ability of the original copyright holder to exploit its work), it appears to be another way for the Court of Appeals to say that digitization is not enough to bring these pre-1972 works under Federal law.

The appellate court also rejected other arguments of the broadcaster – including that Federal law does not preempt state law on this issue as the Copyright Act specifically states that pre-1972 recordings are to be administered under state law until 2067. The Court did not mention that there may be some changes to that analysis if the pending Music Modernization Act (MMA) is passed (see our article here), bringing performance rights for pre-1972 recordings under Federal law.

So what does this all mean? It means that the District Court will need to analyze the remastered songs to see if there is any originality under the standards set out by the Court of Appeals. If not, then it will have to face the underlying issue of whether there is a pre-1972 performance right under California law – a question now being considered by the California courts (see our article here). We will see how this all shakes out – both whether the California courts determine that there is a performance right in pre-1972 sound recordings under state law, and whether the MMA is passed bringing all pre-1972 performance rights under Federal law.