New York State Court Says Pre-1972 Recordings Protected

Absorbing and potentially far-reaching copyright case decided by the New York State Court of Appeals today, Capitol Records v. Naxos of America. The state’s highest court ruled common law in New York “protects ownership interests in sound recordings made before 1972 that are not covered by the federal copyright act.” As a result, Capitol can continue to sue Naxos for copyright violation for records made 40 years before the federal copyright law.

Key portions of The opinion:

Sound recordings produced after February 15, 1972 can be protected from infringement under federal copyright law but Congress did not extend statutory protection to recordings created before that date. In a certified question, the United States Court of Appeals for the Second Circuit asks us whether there is common-law copyright protection in New York for sound recordings made prior to 1972.

This case involves a dispute between two music recording companies. Capitol Records Inc. owns the rights to several classical recordings made in the 1930s. Naxos of America Inc. copied those recordings from the original shellac record format and, using technological advances, remastered the recordings for sale to the public as compact discs. Naxos did not request permission from Capitol to use the recordings. The issue here is whether Capitol may maintain a copyright infringement action against Naxos premised on the common law of New York. Because the answer to this question will have significant ramifications for the music recording industry, as well as these litigants, we were offered and accepted certification.

I. Factual and Procedural Background

During the 1930s, The Gramophone Company Limited, currently known as EMI Records Limited — the parent company of Capitol — recorded classical musical performances of three world-renowned artists: Yehudi Menuhin’s July 1932 performance of Edward Elgar’s “Violin Concerto in B minor, Opus 61”; Pablo Casals’ performances of J.S. Bach’s cello suites, recorded between November 1936 and June 1939; and Edwin Fischer’s performances of Bach’s “The Well Tempered Clavier, Book I,” recorded between April 1933 and August 1934, and of Bach’s “The Well Tempered Clavier, Book II,” recorded between February 1935 and June 1936. The artists’ contracts specified that Gramophone would have absolute, worldwide rights to the performances, including the right to reproduce and sell copies of the performances to the public.

Gramophone recorded all of the performances in England. At that time, the United Kingdom provided statutory copyright protection to sound recordings for 50 years. Thus, all of the Gramophone recordings at issue had entered the public domain in the United Kingdom by 1990.

In 1996, subsidiaries of EMI entered into a series of agreements whereby Capitol was granted an exclusive license to exploit the Gramophone recordings in the United States. Using modern electronic methods, Capitol remastered the original recordings to improve their audio quality and transferred them to
digital format for sale to the public.

Naxos also wished to preserve these important historical recordings. It located copies of the original 1930s shellac recordings and undertook its own multistep restoration process in the United Kingdom. The remastered compact disc versions produced by Naxos were distributed for sale in the United States beginning in 1999, competing with the compact disc products marketed by Capitol. Naxos never obtained a license from Capitol and rebuffed Capitol’s demand to cease and desist the sale of the Naxos compact discs.

Capitol commenced an action against Naxos in the United States District Court for the Southern District of New York in 2002. The complaint set forth claims of common-law copyright infringement, unfair competition, misappropriation and unjust enrichment, all of which were premised on the law of the State of New York, the situs of the alleged infringement. Naxos moved to dismiss for failure to state a claim, arguing that the recordings had entered the public domain in the United Kingdom and, hence, the United States as well. Capitol moved for, among other relief, partial summary judgment on liability.

The District Court granted summary judgment to Naxos. The court characterized Capitol’s cause of action as a “hybrid copyright, unfair competition” claim and concluded that Capitol did not have intellectual property rights in the original recordings because its copyrights had expired in the United Kingdom. With respect to the unfair competition cause of action, the District Court opined that the Naxos recordings were not a “duplicate” or “imitation” of the original recordings but “an entirely new and commercially viable product” because the original shellac records were obsolete and Naxos had removed “numerous sound imperfections” from the records. Finding that public policy favored the preservation and redissemination of classical performances, the court held that Capitol failed to show that Naxos had engaged in the type of bad faith required to sustain an unfair competition cause of action. In a second written decision, the court adhered to its ruling.

On appeal, the Second Circuit determined that this case raises several unsettled issues of New York law. After noting that, under federal law, “it is entirely up to New York to determine the scope of its common law copyright with respect to pre-1972 sound recordings,” the Second Circuit certified the following question to this Court: “In view of the District Court’s assessment of the undisputed facts, but without regard to the issue of abandonment, is Naxos entitled to defeat Capitol’s claim for infringement of common law copyrights in the original recordings?” We are also asked to answer three questions:

(1) “Does the expiration of the term of a copyright in the country of origin terminate a common law copyright in New York?”;
(2) “Does a cause of action for common law copyright infringement include some or all of the elements of unfair competition?”; and
(3) “Is a claim of common law copyright infringement defeated by a defendant’s showing that the plaintiff’s work has slight if any current market and that the defendant’s work, although using components of the plaintiff’s work, is fairly to be regarded as a ‘new product’?”

…With the 1971, 1976 and subsequent congressional amendments to the federal copyright act, New York common-law protection of sound recordings has been abrogated, but only in two respects. First, the common law does not apply to any sound recording fixed, within the meaning of the federal act, after February 15, 1972, because recordings made after that date are eligible for federal statutory copyright protection. Second, state common-law copyright protection is no longer perpetual for sound recordings not covered by the federal act (those fixed before February 15, 1972), because the federal act mandates that any state common-law rights will cease on February 15, 2067. The musical recordings at issue in this case, created before February 15, 1972, are therefore entitled to copyright protection under New York common law until the effective date of federal preemption — February 15, 2067.

…Having concluded that the musical recordings here are presumptively entitled to common-law copyright protection in New York, we proceed to address the three sub-questions posed by the Second Circuit.

First: “Does the expiration of the term of a copyright in the country of origin terminate a common law copyright in New York?”

When the recordings here were created in England, they received statutory copyright protection in the United Kingdom for 50 years after the date of creation. As a result, the UK copyrights for all of the recordings expired by the 1990s — years before Naxos’s allegedly infringing actions. Naxos argues, and the District Court apparently agreed, that the expiration of the foreign copyrights prevents the enforcement of copyright protections in other jurisdictions, including the United States and New York.

We disagree and concur with the Second Circuit’s observation that “nothing in federal law denies Capitol enforceable rights in the original recordings simply because the U.K. copyrights have expired.”

Under the Federal Constitution, treaties that the United States enters with other countries have the force of federal law and must be respected by the states. Although the Berne Convention and the Universal Copyright Convention both recognize the “Rule of the Shorter Term,” which generally provides that the term of copyright in the nation where a work is first published should be applied by other nations that would grant a longer period of protection, neither treaty applies this rule to sound recordings. Instead, sound recordings fall within the ambit of the Phonograms Convention but this treaty applies only to recordings fixed after the date it became law (March 10, 1974 in the United States). Furthermore, the Phonograms Convention does not contain a rule of the shorter term. Nor does the statutory implementation of the Uruguay Round Agreements Act, which appears in 17 USC § 104A, alter the common law with respect to the recordings at issue.

That provision restores US copyright protection to certain public domain works but does not apply to recordings, like those here, that were in the public domain in the country of origin prior to 1996.

Thus, neither federal statutory nor constitutional law prohibits the states from providing common-law protection to artistic works that are in the public domain in the country of origin. Nothing in the statutes of this state or in our jurisprudence suggests such a prohibition is warranted. Indeed, there are indications that the opposite is true, given that the copyright protection extended by state common law to sound recordings not covered by the federal copyright act is similar to the scope of common-law ownership rights in other forms of property, which can exist indefinitely. Until 2067, no federal or state statutory impediment constricts this common-law durational component for pre-1972 sound recordings. Applying the copyright law of the situs where the infringement occurs, there is no justification under New York law for substituting the British copyright term in place of New York’s common-law protection for these recordings, which continues until federal preemption occurs. We therefore answer the first subquestion in the negative because we conclude that New York provides common-law copyright protection to sound recordings not covered by the federal copyright act, regardless of the public domain status in the country of origin, if the alleged act of infringement occurred in New York.

Second: “Does a cause of action for common law copyright infringement include some or all of the elements of unfair competition?”

We understand this question to ask whether the District Court was correct to assume that some type of malicious intent or bad faith is a necessary element of a state common-law copyright infringement claim. A copyright infringement cause of action in New York consists of two elements: (1) the existence of a valid copyright; and (2) unauthorized reproduction of the work protected by the copyright. To the extent that any inference of deceptive or fraudulent intent may have been referred to in early copyright case law, it appears to have been the view that bad faith was inherent in the act of copying and selling a work without permission from a competitor because this would deprive the true owner of the work’s value. But fraud or bad faith is not an element of an infringement action in modern New York law. Copyright infringement is distinguishable from unfair competition, which in addition to unauthorized copying and distribution requires competition in the marketplace or similar actions designed for commercial benefit, or deception of the public. In response to the second sub-question, we hold that the causes of action for copyright infringement and unfair competition are not synonymous under New York law.

Third: “Is a claim of common law copyright infringement defeated by a defendant’s showing that the plaintiff’s work has slight if any current market and that the defendant’s work, although using components of the plaintiff’s work, is fairly to be regarded as a ‘new product’?”

We begin by noting that Naxos does not contend that “market size” or “new product” issues are relevant to the existence of a common-law copyright regarding sound recordings.

Its discussion of those terms is limited to the context of an unfair competition cause of action. In any event, the ability to enforce copyright protections provided by New York common law are not diminished due to the size of the market and, therefore, the popularity of a product does not affect a state common-law copyright infringement claim.

Nor do we believe that a state common-law copyright claim can be defeated under the so-called “new product” analysis. We note that the Second Circuit has declared that the “[i]ndependent creation” of a new product can “not consist of actual copying” of an entire work. In the related area of the federal “fair use” doctrine, it is a general rule that the reproduction of an entire copyrighted work constitutes infringement. We see no justification for adopting a different rule of state law. Thus, even assuming that Naxos has created a “new product” due to its remastering efforts that enhance sound quality, that product can be deemed to infringe on Capitol’s copyright to the extent that it utilizes the original elements of the protected performances. We conclude that the third sub-question should be answered in the negative.

VI. Conclusion

In light of our responses to these inquiries and our conclusion that state common law protects ownership interests in sound recordings made before 1972 that are not covered by the federal copyright act, the answer to the main certified question is that, without regard to the issue of abandonment, Naxos is not entitled to defeat Capitol’s claim for infringement of common-law copyright in the original recordings. Accordingly, the certified question should be answered in the negative.

“I hope the companies who have been inclined to copy older classical recordings realize the New York court has spoken definitively on this and end any unlicensed copying,” Capitol attorney Philip Allen Lacovara told AP. “It does have enormous importance.”