MEMORANDUM DECISION AND ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Plaintiff Flo & Eddie, Inc. (“Flo and Eddie”) brings this putative class action suit against Defendant Sirius XM Radio, Inc. (“Sirius”). The complaint alleges that Sirius committed common law copyright infringement and engaged in unfair competition by publicly performing sound recordings owned by Flo and Eddie, and by reproducing those recordings in aid of its performances. Before the Court is Docket #46, Sirius’s motion for summary judgment. For the reasons stated below, the motion is DENIED.
Furthermore, it appears to the Court that there are no disputed issues of material fact as to liability. Sirius is therefore ORDERED to show cause by December 5, 2014, why summary judgment should not be entered in favor of Flo and Eddie as to liability only. See Fed.R.Civ.P. 56(f)(1).
BACKGROUND
I. Factual Background
A. The Parties
Flo and Eddie is a California corporation, wholly owned by its principals, Mark Volman (“Volman”) and Howard Kaylan (“Kaylan”). (Sirius 56.1 Statement ¶¶ 1-2; Volman Decl. ¶ 1.) Volman and Kaylan are two of the original members of The Turtles (“the Turtles”), a 1960s rock group whose hits included “Happy Together” and a cover of Bob Dylan’s “It Ain’t Me Babe.” (Sirius 56.1 Statement ¶ 16; Flo and Eddie 56.1 Statement ¶¶ 2-3.)
Master recordings of the Turtles’ performances-all of which were made prior to February 15, 1972 were originally held by White Whale Records. (Sirius 56.1 Statement ¶¶ 1, 17; Flo and Eddie 56.1 State
Sirius is a Delaware corporation engaged in the satellite radio business. (Sirius 56.1 Statement ¶ 3.) Sirius provides digital audio content to its subscribers, who pay a periodic fee. (Geller Decl., Ex. 6.) Subscribers can receive audio content in several ways. Many subscribers — a majority according to Sirius — use special digital radios installed in their vehicles. (Sirius 56.1 Statement 15; Smith Decl. ¶ 4.) Other subscribers stream the same programming over the internet to a computer or mobile device. (Sirius 56.1 Statement ¶ 6; Flo and Eddie 56.1 Statement ¶ 14; Smith Decl. ¶ 6; see Smith 2/11/14 Dep. Tr. at 194:22-25.) Some users receive Sirius’s music programming through Dish Network set-top boxes. (Sirius 56.1 Statement ¶ 6; Flo and Eddie 56.1 Statement ¶ 3; Smith Decl. ¶ 6; Smith 2/11/14 Dep. Tr. at 224:22-226:5.) Businesses can also receive music broadcasts to play in their retail establishments through Sirius’s “Business Establishment Service.” (Sirius 56.1 Statement ¶ 6; Smith Decl. ¶ 6.)
Sirius offers a diverse set of programming including talk radio, live sports coverage, and music. (Sirius 56.1 Statement ¶ 4.) Music programming is featured on dozens of Sirius channels. (Geller Decl., Ex. 7.) Many of those channels — for example “60s on 6” or “70s on 7” — broadcast pre-1972 sound recordings. (Flo and Eddie 56.1 Statement ¶ 13.) Some of those channels have broadcast Turtles sound recordings. (See, e.g., Sirius 56.1 Statement ¶¶ 21-22; Smith Decl. ¶¶ 12-13.) Both Sirius subscribers and users those who receive Sirius content through Dish Network set-top boxes can listen to programming that features pre-1972 sound recordings. (Smith 2/11/14 Dep. Tr. at 226:6-18.)
Sirius acknowledges that it “perform[s]” sound recordings, including pre-1972 sound recordings, by broadcasting them over its satellite radio network and streaming them over the internet. (Smith 3/12/14 Dep. Tr. at 96:21-97:15.) The pre-1972 sound recordings Sirius has performed include Turtles recordings. (Smith 3/12/14 Dep. Tr. at 104:8-105:9.) Sirius does not currently know how many pre-1972 recordings it has performed, or how many times it has performed Turtles recordings. (Smith 3/12/14 Dep. Tr. at 97:16-25,105:11-22.)
B. Sirius’s Operations
To understand Flo and Eddie’s claims, one has to understand a bit about the technical aspects of Sirius’s operations. Sirius stores its permanent digital music library on three databases, named “Prophet,” “Dalet 5.1,” and “Dalet Plus.” (Sirius 56.1 Statement ¶¶ 24-26; Smith Decl. ¶ 17; Smith 2/11/14 Dep. Tr. at 154:2-8.) The Prophet database is located in New York City, and the two Dalet databases are located in Washington, D.C. (Sirius 56.1 Statement ¶¶ 25-26; Smith Decl. ¶¶ 18-19.) Sirius maintains onsite backup copies of each database, as well as off-site disaster recovery copies of the Prophet database in New Jersey, and of the Dalet databases in Georgia. (Sirius 56.1 Statement ¶¶ 25-26; Flo and Eddie 56.1 Statement ¶ 18; Smith Decl. ¶¶ 18-19; Smith 2/11/14 Dep. Tr. at 154:11-155:23, 156:15-157:7.)
The content of the three databases overlaps imperfectly. (Smith 2/11/14 Dep. Tr.
In addition to its three main databases, Sirius stores subsets of its music library on smaller databases at off-site locations. (Sirius 56.1 Statement ¶ 33; Flo and Eddie 56.1 Statement ¶ 18; Smith Decl. ¶ 27.) Specifically, Sirius maintains recordings from the Prophet database on smaller databases in Nashville, Orlando, and Boston. (Smith . 2/11/14 Dep. Tr. at 158:17-21, 159:6-9.) Recordings from the Dalet databases reside on databases in Cleveland, Austin, and Los Angeles. (Sirius 56.1 Statement ¶ 33; Smith 2/11/14 Dep. Tr. at 158:22-159:5.) These smaller databases are used to produce on-location shows tailored to a particular musical style or on-air talent. (Smith 2/11/14 Dep. Tr. at 158:17-159:9, 163:4-21.) Some of these databases contain pre-1972 recordings, and the Cleveland database contains at least one Turtles recording. (Sirius 56.1 Statement ¶ 33; Smith 2/11/14 Dep. Tr. at 160:9-161:25, 162:25-163:3, 164:12-23; Smith 3/12/14 Dep. Tr. at 51:11-54:4.)
Sirius has also copied some recordings to a database that it transferred to Omni-fone, a UK-based firm that operates the My SXM service, described below. (Sirius 56.1Statement ¶ 35; Flo and Eddie 56.1 Statement ¶ 29; Smith 2/11/14 Dep. Tr. at' 33:25-34:16, 165:4-11; Smith 3/12/14 Dep. Tr. at 107:15-21.) Although the parties agree that Omnifone continues to possess those copies, Sirius claims that Omnifone can use them only for a very limited purpose: to provide the customized My SXM service. (Sirius 56.1 Statement ¶ 35; Smith 2/11/14 Dep. Tr. at 35:9-25.) The database transferred to Omnifone contains pre-1972 recordings, including Turtles recordings. (Sirius 56.1 Statement ¶ 35; Smith Deck ¶¶ 27, 29; Smith 2/11/14 Dep. Tr. at 165:7-15; Smith 3/12/14 Dep. Tr. at 54:22-55:14.)
Several hours before Sirius plays a sound recording on one of its programs, it creates an additional copy of the recording on its “play-out server.” (Sirius 56.1 Statement ¶ 37; Flo and Eddie 56.1 Statement ¶ 20; Smith Deck ¶ 31; Smith 2/11/14 Dep. Tr. at 19:5-16.) Content is broadcast directly from the play-out server; the copy ensures a smooth broadcast even if there is a network disruption. (Sirius 56.1 Statement ¶ 37; Smith Deck ¶ 31; see Smith- 2/11/14 Dep. Tr. at 114:15-116:16.) The copy on the play-out server is deleted once a recording is broadcast. (Sirius 56.1 Statement ¶ 37; Smith Deck ¶ 31.) Each time a recording is performed, a new copy is created on the play-out server. (Smith 2/11/14 Dep. Tr. at 117:9-11; Smith 3/12/14 Dep. Tr. at 89:2-7.) Because Sirius has performed pre-1972 recordings, including Turtles recordings, it has necessarily copied those recordings to its play-out server-many times, in fact. (Smith 3/12/14 Dep. Tr. at 88:2-
To deliver content through its streaming service, Sirius employs a third party, Aka-mi. (Smith 2/11/14 Dep. Tr. at 176:5-11; Smith 3/12/14 Dep. Tr. at 108:3-21.) Sirius sends a signal of its programming to Akami; Akami in turn makes several temporary copies of the recordings that Sirius sends it in order to facilitate its content distribution operation. (Smith 2/11/14 Dep. Tr. at 177:21-178:11.) Pre-1972 recordings are included in the programming that Sirius broadcasts and Akami copies. (Smith 3/12/14 Dep. Tr. at 46:17-20.)
■ Sirius makes additional complete of recordings it has broadcast for its “Start Now” service.
Separately from the Start Now feature, Sirius also authorizes Quick Play, a third party, to maintain a five hour cache of Sirius programming. (Smith 2/11/14 Dep. Tr. at 179:5-17, 193:16-19.) Quick Play’s role, performed in conjunction with Akami, is to deliver Sirius content to mobile devices. (Smith 2/11/14 Dep. Tr. at 179:23-180:4.) As with the Start Now cache, Quick Play has included pre-1972 recordings in its five-hour cache. (Smith 2/11/14 Dep. Tr. at 214:9-19.)
In aid of broadcasting, Sirius also makes partial copies of some recordings, known as “tips-and-tails” copies. (Sirius 56.1 Statement ¶ 36; Flo and Edie 56.1 Statement ¶ 19; Smith Decl. ¶ 30; Smith 2/11/14 Dep. Tr. at 18:4-25.) These copies contain the final few seconds of one recording and the first few seconds of the .recording set to play after it. (Sirius 56.1 Statement ¶ 36; Smith Decl. ¶ 30; Smith 2/11/14 Dep. Tr. at 52:20-53:25.) Hosts of Sirius programs use the tips-and-tails copies to properly time voice-overs in which they will, for example, announce the titles of the recording that just played and the one about to play. (Sirius 56.1 Statement ¶ 36; Smith Decl. ¶ 30; Smith 2/11/14 Dep. Tr. at 18:4-25.) A host will pre-record voice-overs against the background of the tips-and-tails recording to ensure that a voice-over does not bleed over too far into the body of a recording. After the voice-over is recorded, the tips-and-tails copy is deleted. (Sirius 56.1 Statement ¶ 36; Smith Decl. ¶ 30; Smith 2/11/14 Dep. Tr. at 55:5-56:10.) (There appears to be one exception. The smaller regional “Margari-taville” database retains permanent copies of tips-and-tails recordings. (Smith 2/11/14 Dep. Tr. at 83:2-84:6.)) Partial copies of pre-1972 recordings, including Turtles recordings, have been made for tips-and-tails purposes. (Smith 2/11/14 Dep. Tr. at 56:11-18; Smith 3/12/14 Dep.
The most contentious factual dispute between the parties concerns buffering, which Flo and Eddie describes as “progressive downloading.” (Flo and Eddie 56.1 Statement ¶¶ 30-31; Smith 2/11/14 Dep. Tr. at 203:18-204:10.) Buffering, in general, refers to storing a small segment of audio or video content in computer memory to ensure smooth playback. Sirius’s content is buffered at several points. Sirius buffers for four seconds at the “earth station,” where content is uplinked to a satellite. (Sirius 56.1 Statement ¶ 38; Smith Decl. ¶ 32; Smith 2/11/14 Dep. Tr. at 119:12-120:2.) The four second buffer allows Sirius to send two separate signals to its satellites. A user’s radio can then substitute one transmission for another if a connection is momentarily blocked, so that playback will-not be interrupted. (Sirius 56.1 Statement ¶ 38; Smith Decl. ¶ 32.) The satellites then send back the two signals, where they are received by a “terrestrial repeater.” (Sirius 56.1 Statement ¶ 38; Smith Decl. ¶ 32; Smith 2/11/14 Dep. Tr. at 93:12-15.) The terrestrial repeaters buffer the first signal received until they receive the second signal, generally on the order of a few milliseconds later. (Smith 2/11/14 Dep.' Tr. at 93:16-94:3, 135:18-136:25.) Finally, Sirius digital radios store signals they receive in memory, creating a four-second buffer at the point where subscribers listen to content. (Smith 2/11/14 Dep. Tr. at 96:3-97:7, 111:15-112:10; see Smith 2/11/14 Dep. Tr. at 137:14-18 (noting that there are two distinct four-second buffers).)
Some individual radio receivers create a buffer of up to 30 minutes on a channel to which a subscriber is listening. (Sirius 56.1 Statement ¶ 44; Smith Decl. ¶ 35.) That buffer allows users to “replay” a few minutes of a show they miss. (Sirius 56.1 Statement ¶ 44; Smith Decl. ¶ 35.) The replay buffer is overwritten on a rolling first-in, first-out basis and is erased if a user changes the channel or turns off the radio. (Sirius 56.1 Statement ¶ 44; Smith Decl. ¶ 35.) Finally, mobile phones or other internet-connected devices also create a buffer when they stream Sirius’s content. (Sirius 56.1 Statement ¶ 43; Smith Decl. ¶ 34.) Because buffers are created any time Sirius broadcasts a recording, Sirius has of course created buffers of pre-1972 recordings. (Smith 2/11/14 Dep. Tr. at 138:7-13.)
Flo and Eddie emphasizes that every second of a buffered recording will, at some point, be cached in the buffer, even if no complete copy is.ever created. Sirius stresses that buffers -are constantly adding new data and removing old data. At any one time, a buffer contains at most a few seconds of content, which may include portions of more than one recording.
The long and short of this is — Sirius makes multiple copies, temporary, permanent, whole or partial, during its broadcast process; and it performs the' copies it makes. Furthermore, as to pre-1972 sound recordings, it does so without obtaining licenses or paying royalties. Sirius has not obtained a license to copy most of the pre-1972 recordings stored in its various databases. (Frear 3/12/14 Dep. Tr. at 77:20-79:25.) Nor has Sirius obtained licenses to perform most of those recordings over the internet, (Frear 3/12/14 Dep. Tr. at 80:2-21), or to authorize third parties Omnifone or Akami to stream its programming. (Frear 3/12/14 Dep. Tr. at 90:11— 91:5.) Sirius has not paid royalties to copy or perform most of its pre-1972 recordings. (Frear 3/12/14 Dep. Tr. at 69:10-16.)
For all the copying it does do, it’s worth noting what Sirius does not do. Sirius
Nor does Sirius allow users to listen to a particular recording whenever they choose to do so. In this way, Sirius differs from some internet radio services like Spotify. (Sirius 56.1 Statement ¶ 41; Smith Decl. ¶ 14.) Users can customize the programming they receive to a limited extent using the “My SXM” feature. (Sirius 56.1 Statement ¶ 35; Flo and Eddie 56.1 Statement ¶ 15; Geller Decl., Ex. 8; Smith Decl. ¶ 28.) For example, a user could choose to emphasize folk music and deemphasize rock music on a 70s channel. But that user could not choose to listen only to Bob Dylan, much less a particular Bob Dylan recording, while excluding anything by Led Zeppelin. (See Sirius 56.1 Statement ¶ 41; Smith Decl. ¶¶ 14, 28.)
II. Procedural Background
Flo and Eddie filed its initial complaint on August 16, 2013. (Docket # 1.) In response to a motion to dismiss filed by Sirius, Flo and Eddie filed an amended complaint on November 13, 2013. (Docket #32.)
Flo and Eddie has filed companion suits in California and Florida. (See Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. 13-cv-23182 (S.D.Fla.); Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. 13-cv-05693 (C.D.Cal.)). In each case, Flo and Eddie has asserted state-law claims under the law of the state in which the suit was filed. The district court in the California suit granted Flo and Eddie’s motion for summary judgment as to liability. The district court in the Florida suit has not yet issued a decision on a pending motion by Flo and Eddie for summary judgment as to liability-
To understand why Flo and Eddie seeks relief under state law, one has to know a bit about federal copyright law. Since 1831, federal law has protected copyrights in musical compositions. See 17 U.S.C. § 102(a)(2); Act of Feb. 3, 1831, ch. 16, § 1, 4 Stat. 436. “The creator of a musical composition has long had a right of exclusive public performance of that musical piece.” Bonneville Int’l Corp. v. Peters,
A copyright in a musical composition is not same as a copyright in a sound recording of a performance of that composition. And this lawsuit not about musical compositions. (PI. Opp. Mem. at 10 n. 6.) As far as the Court is aware, Sirius pays royalties to the holder of the copyright for the right to perform the Turtles’ musical compositions.
This suit is about copyright in sound recordings, which is a different animal. A sound recording is a medium in or on which a particular performance of a musical composition (song) is fixed for posterity and for playback. See 17 U.S.C. § 101. In essence, a copyright in a sound
Congress only made sound recordings eligible for federal statutory copyright protection in 1971. See Sound Recordings Act, Pub.L. No. 92-140, 85 Stat. 391 (1971). Furthermore, that protection was limited in two important ways.
First, Congress did not originally provide sound recording copyright holders with an exclusive right to publicly perform their works. Bonneville Int’l Corp.,
The second important limitation of the 1971 Act was that it operated prospectively. Recordings “fixed” (recorded) prior to February 15, 1972 were not, and still are not, eligible for federal copyright protection. See 17 U.S.C. § 301(c). The Turtles recordings were all fixed before February 15, 1972. Therefore, none is eligible for federal copyright protection.
Instead of adopting a federal copyright scheme for pre-1972 sound recordings, Congress left the issue to the states. For works protected by federal law, Congress broadly preempted any “equivalent right in any such work under the common law or statutes of any State.” Id. § 301(a). For sound recordings fixed before February 15, 1972, however, Congress expressly did “not ... annul[ ] or limit[ ]” “any rights or remedies under the common law or statutes of any State.” Id. § 301(c).
Flo and Eddie argues that New York provides pre-1972 sound recording owners with rights and remedies under its common law. Flo and Eddie further argues that New York’s common law copyright protection, which extends to pre-1972 sound recordings, prohibits both reproducing and publicly performing those recordings. It also argues the law of unfair competition provides similar protection.
Sirius has moved for summary judgment. (Docket # 46.) It argues that: (1) New York common law copyrights in pre-1972 sound recordings do not afford an exclusive right of public performance; (2) the copies Sirius made of Turtles recordings are protected by fair use; (3) sustaining Flo and Eddie’s claims would violate the Dormant Commerce Clause; and (4) Flo and Eddie’s entire action is barred by the doctrine of laches.
DISCUSSION
I. Standard
A party is entitled to summary judgment when there is “no genuine issue as to any material fact” and the undisputed facts warrant judgment for the moving party as a matter of law. Anderson v. Liberty Lobby, Inc.,
To withstand a motion for summary judgment, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita,
II. Sirius Cannot Invoke the Defense of Laches
Sirius argues that Flo and Eddie’s entire suit is barred by the defense of laches. But it is not.
“The defense of laches is unavailable in [an] action at law commenced within the period of limitations.” Cadlerock, L.L.C. v. Renner,
Nor does laches bar Flo and Eddie’s prayer for an injunction. That request “for an equitable remedy” is made “in aid of or to enforce a legal right.” Bohemian Brethren Presbyterian Church v. Greek Archdiocesan Cathedral of Holy Trinity,
III. Flo and Ed die Holds the Valid Common Law Copyright in the Turtles’ Sound Recordings
As explained above, federal law provides copyright protection for sound recordings
New York has elected to “fill th[e] void” Congress left, by continuing to enforce its preexisting body of copyright common law for pre-1972 sound recordings. Capitol Records, Inc. v. Naxos of Am., Inc. (Naxos),
The Turtles óriginally acquired a common law copyright in their sound recordings by expending time, effort, money and skill to create them. That copyright was then transferred to White Whale, and eventually to Flo and Eddie, which now owns the sound recordings. Sirius does not contest Flo and Eddie’s claim to possess a common law copyright in the Turtles recordings (though it insinuates that some of the underlying ownership transfers are undocumented). Rather, Sirius contends that Flo and Eddie’s rights as holder of the copyright in the sound recordings does not give them the exclusive right to publicly perform those works.
IV. Flo and Eddie’s Common Law Copyright Provides Exclusive Rights to Reproduce and Publicly Perform Turtles Recordings
Flo and Eddie alleges that Sirius has infringed its common law copyright by (1) reproducing (making copies of) the master recordings, and (2) performing those recordings (or the illicit copies of them) publicly.
New York unquestionably provides holders of common law copyrights in sound recordings with an exclusive right to reproduce those recordings. See Capitol Records,
Whether New York provides holders of common law copyrights in sound recordings with an exclusive right to publicly perform those recordings presents 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. My first task is to predict how I believe the New York Court of Appeals would rule on this question,
I conclude that the New York Court of Appeals would recognize the exclusive right to public performance of a sound recording as one of the rights appurtenant to common law copyright in such a recording.
“In general, the rights under common law copyright ... are at least coextensive with the rights commanded under the Copyright Act.” 2 Melville B. Nimmer and David Nimmer, Nimmer on Copyright § 8[C][2] (Matthew Bender, Rév. Ed.). But when New York first recognized common law copyrights in sound recordings' — over 50 years ago — Congress had not yet authorized any federal copyright protection for sound recordings. Naxos,
Thus, the protections New York common law offers to holders of copyrights in sound recordings cannot be determined by reference to comparable federal protection. Instead, I must look to the background principles and history of New York copyright common law. See id. at 546,
The common law typically “protects against unauthorized reproduction of copies or phonorecords, unauthorized distribution by publishing or vending, and unauthorized' performances.” 2 Nimmer on Copyright § 8[C][2] (internal citations omitted) (emphasis added); see Letter Edged in Black Press, Inc. v. Pub. Bldg. Comm’n of Chicago,
Nonetheless, Sirius advances a number of arguments for why New York common law copyright in sound recordings does not include any public performance right.
Sirius principally argues that no such right exists because New York case law contains no discussion of public performance rights in sound recordings. But the exact same argument could have been made (and undoubtedly was made, and rejected) in Naxos — a case decided only in 2005, more than a century after sound recordings were invented. The very fact that Naxos was decided in favor of the
Of course, the conspicuous lack of any jurisprudential history confirms that not paying royalties for public performances of sound recordings'was an accepted fact of life in the broadcasting industry for the last century. So does certain testimony cited by Sirius from record industry executives, artists and others, who argued vociferously before Congress that it was unfair for them to operate in an environment in which they were paid nothing when their sound recordings were publicly performed. See, e.g., Digital Performance Rights: Hearing Before the House Judiciary Committee Subcommittee on Courts and Intellectual Property on H.R. 1506, 104th Cong. (1995) (statement of Edward O. Fritts, President & CEO, Nat’l Ass’n of Broadcasters),
But acquiescence by participants in the recording industry in a status quo where recording artists and producers were not paid royalties while songwriters were does not show that they lacked an enforceable right under the common law — only that they failed to act on it. The United States Copyright Office, in its most recent commentary on this subject, concluded, “While, as a factual matter, a state may not have affirmatively acknowledged a public performance right in pre-1972 recordings as of the Office’s 2011 report, the language in the report should not be read to suggest that a state could not properly interpret its law to recognize such a right.” Music Licensing Study: Second Request for Comments, 79 Fed.Reg. 42,833-01, 42,-834 n. 3 (July 23, 2014).
The United States Supreme Court admonished recently against reading too much into a lack of precedent for a point, stating (in another context), “It should be unsurprising that such a significant matter has been for so long judicially unresolved.” D.C. v. Heller,
In fact, there is precedent for this kind of judicial silence in the copyright arena. Prior to 1976, choreography was deemed ineligible for any sort of copyright protection, under federal or common law. Courts declined to offer copyright protection to dance on the theory that choreographic works did not “tell” a story, and thus could not be considered copyright-eligible “dramas.” See, e.g., Seltzer v. Sunbrock,
So it is not surprising that sound recordings, like choreographic works, received little attention from courts before they became eligible for statutory copyright. It is likely that the issue was just not on anyone’s radar screen until Congress granted a public performance right in more recent sound recordings.
An arguably stronger argument can be made that years of judicial silence implies exactly the opposite of what Sirius contends — not that common law copyright in sound recordings carries no right of public performance, but rather that common law copyright in sound recordings comes with the entire bundle of rights that holders of copyright in other works enjoy. No New York case recognizing a common law copyright in sound recordings has so much as suggested that right was in some way circumscribed, or that the bundle of rights appurtenant to that copyright was less than the bundle of rights accorded to plays and musical compositions. The expansive nature of New York’s common law protection for artistic works that do not enjoy federal statutory copyright protection was announced over fifty years ago, in Metropolitan Opera Association v. Wagner-Nichols Recorder Corp., supra — a case protecting property rights in sound recordings. There, the court said, “The law has ... protected the creative element in intellectual productions — that is, the form or sequence of expression, the new combination of colors, sounds or words presented by the production ... against appropriation by others.” Metro. Opera,
Modern federal law supports the notion that an express carve-out is required in order to circumscribe the bundle of rights appurtenant to copyright. When Congress amended the Copyright Act in 1971 to protect copyrights in sound recordings, it announced quite explicitly that sound recordings would not carry any right to public performance. The relevant section of Title 17 limits copyright in sound recordings to the rights, “To reproduce and distribute to the public by sale or other transfer of ownership, or by rental, lease, or lending, reproductions of the copyrighted work if it be a sound recording.” Sound Recordings Act, Pub.L. No. 92-140, 85 Stat. 391, 391 (1971). The 1971 Act further provided that “the exclusive right •of the owner of a copyright in a sound recording to reproduce it is limited to the right to duplicate the sound recording in a tangible form,” and that “this right does not extend to ... reproductions made by transmitting organizations exclusively for their own use.” Id.
This express carve-out for public performance strongly suggest that, absent such an explicit limitations, holder of sound recording copyrights would have enjoyed the entire bundle of rights traditionally granted to copyright holders — including the right to public performance, which has been part of the bundle of rights enjoyed by holders of federal.copyrights in performable works since 1897 or earlier. Put otherwise, if public performance rights were not part of the normal bundle of rights in a copyright, Congress would not have needed to carve out an exception specifically for sound recordings. See Cent. Virginia Cmty. Coll. v. Katz,
Sirius claims that affording public performance rights would not serve the underlying purposes of copyright law because pre-1972 recordings already exist and further rights cannot create incentives for the creation of new pre-1972 recordings.
But the same criticism could be leveled against the New York Courts of Appeals’ decision in Naxos. There, in answer to a certified question from the Second Circuit, the New York Court of Appeals held 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.” Naxos,
New York is hardly unique in this regard. Each time that Congress is asked to extend the term of copyright protections (a request not infrequently made), some
Sirius also claims that recognizing public performance rights in pre-1972 sound recordings would unjustly punish good faith investors who provided capital for Sirius.
Investors always assume the risk that whatever economic model they are working off will turn out not to be correct, so investor expectations are rarely “settled” enough to provide a justification for declining to apply the correct legal rule.
However, I question whether the investors would be truly surprised if Sirius were to have to pay royalties in order to, perform pre-1972 sound recordings. Sirius, which broadcasts exclusively in non-analog form, must pay royalties under federal law in order to broadcast posN1972 sound recordings. All Flo and Eddie seeks here is the right to receive royalties under state law for the digital broadcasting of its pre-1972 recordings — hardly a shocking development in the world of digital broadcasting.
Indeed, as a matter of public policy there would seem to be good reason to harmonize New York’s common law of copyright with its federal statutory counterpart, see 2 Nimmer on Copyright § 8[C][2], and recognizing public performance rights in pre-1972 sound recordings would conform the two.
In 1995, Congress added a limited right for sound recording copyright holders to publicly perform their works “by means of a digital audio transmission.”, 17 U.S.C. § 106. In creating that limited right, Congress carefully balanced the interests of all affected parties. As Senator Hatch explained, the bill establishing a public performance right was “forward looking. It largely leaves in place mature businesses that have grown up under the old copyright regime [i.e., analog broadcasting]. It seeks to ensure that creators of sound recordings will have the rights they have been denied until now as the digital age dawns.” 141 Cong. Rec. 22,775, 22,779 (1995). By establishing a “new digital performance right [that] applies to digital audio transmission .,.. [but] not [ ] to traditional broadcasts and most other free transmissions” Congress “attempted, to balance the competing interests of the various copyright owners as well as users.” Id.; see H.R.Rep. No. 104-274, at 13-15 (1995); S.Rep. No. 104-128, at 13-17 (1995), 1995 U.S.C.C.A.N. 356, 366; see generally Kimberly L. Craft, The Webcast-ing Music Revolution Is Ready to Begin, As Soon As We Figure Out the Copyright Law: The Story of the Music Industry at War with Itself, 24 Hastings Comm. & Ent. L.J. 1, 9-13 (2001) (discussing the legislative history of the 1995 Act).
Sirius would of course respond that any public performance right that the New York Court of Appeals might recognize would be broader than the right legislated by Congress, encompassing analog broadcasting, the “mature” (some would say dying) industry that Congress exempted from the payment of royalties for public performance. And Sirius quite rightly notes that the right Congress has created for posM.972 works is part of a carefully crafted scheme that operates nationwide, whereas common law copyrights are the
Sirius-may well be correct that a legislative solution would be best. But the common law, while a creature of the courts, exists to protect the property rights of the citizenry. And courts are hardly powerless to craft the sort of exceptions and limitations Congress has created, or to create a mechanism for administering royalties. Sirius forgets that it was this court, not Congress, that, back in 1950 fashioned a consent decree that set up what became the most successful mandatory licensing and royalty scheme in the world — a system still administered by a judge of this court, which functions as a rate court for the major licensing houses like ASCAP and BMI. See United States v. Am. Soc’y of Composers, Authors and Publishers, No. CIV.A. 42-245,
In short, general principles of common law copyright dictate that public performance rights in pre-1972 sound recordings do exist. New York has always protected public performance rights in works other than sound recordings that enjoy the protection of common law copyright. Sirius suggests no reason why New York — a state traditionally protective of performers and performance rights — would treat sound recordings differently.
V. Sirius Infringed Flo and Eddie’s Common Law Copyright and Engaged in Unfair Competition
A. Common-Law Copyright Infringement
1. Sirius Reproduced Flo and Eddie’s Copyrighted Recordings Without Authorization
“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.” Naxos,
As explained above, Flo and Eddie holds a valid copyright in the Turtles recordings. The record clearly shows that Sirius reproduced those recordings without authorization. In particular, Sirius reproduced Turtles recordings for its three main databases and associated backups, as well as for the smaller on-site databases, including the database it transferred to Omnifone. Sirius also made several temporary but complete copies of Turtles recordings: on its play-out server each time a Turtles song was performed, in each of the five-hour caches, and in the half-hour buffer available on some in-vehicle satellite radios.
To be sure, some of the alleged copies may not qualify as infringing reproductions. Buffering, for example, does not constitute infringement under federal law. See Cartoon Network LP, LLLP v. CSC Holdings, Inc.,
In reproducing Turtles recordings, Sirius acted without authorization. As noted above, Sirius has not obtained licenses for using pre-1972 recordings, either to store those recordings in its databases or to broadcast them. Nor has Sirius obtained licenses or paid royalties for transferring those recordings to third parties.
Sirius argues instead that it is not liable for infringement because it did not distribute the Turtles recordings. Sirius supports that argument with language from Naxos, “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.”
But as I explained above, New York law does provide copyright holders with just’ that exclusive performance right for sound recordings. To the extent that distribution is an element of common law copyright infringement, publicly performing sound recordings is an act of distribution. Otherwise, Sirius cannot explain how New York courts could have recognized infringement claims alleging that defendants publicly performed copyrighted works without authorization. See, e.g., Brandon Films,
In addition to Naxos, Sirius cites Hemingway’s Estate v. Random House, Inc.,
One might argue that Flo and Eddie divested itself of its copyright in the Turtles sound recordings by “publishing” those recordings. See Jewelers’ Mercantile Agency v. Jewelers’ Weekly Pub. Co.,
But there is a good reason why Sirius did not make this argument. In the context of sound recordings, “it has been the law in [New York] for over 50 years that, in the absence of federal statutory protection, the public sale of a sound recording otherwise unprotected by statutory copyright does not constitute a publication sufficient to divest the owner of common-law copyright protection.” Naxos,
2. Sirius’s Creation of Multiple Complete Copies of Flo and Eddie’s Sound Recordings Cannot Be Considered Not Fair Use
Although the case law is sparse, it appears that New York recognizes fair use as a defense to copyright infringement. See Fendler v. Morosco,
Under federal law, courts “determin[e] whether the use made of a work in any particular case is a fair use” by considering, among other factors:
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2)' the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. 17 U.S.C. § 107.
On all four factors, Sirius’s creation of the unauthorized copies fails to qualify as “fair use.”
In considering the first factor— the “purpose and character of the use,” courts must ask “whether the new work merely supersedes the objects of the original creation or instead adds something new, with a further purpose or different character ..., in other words, whether and to what extent the new work is transfor-mative.” Campbell v. Acuff-Rose Music, Inc.,
Sirius is a for-profit entity using Flo and Eddie’s recordings for commercial purposes. Moreover, Sirius’s use is not transformative. Sirius does not add anything new or change the Turtles recordings by copying and performing them. Publicly performing a recording adds no “new expression, meaning, or message,” to the recording. Campbell,
The cases cited by Sirius do establish that a use may be- transformative even when it requires completely copying a copyrighted work. But the uses in those cases are far different than what Sirius does. Courts, for example, have upheld as fair use copying images that then appear as “thumbnail” results in response to an internet search. See, e.g., Kelly v. Arriba Soft Corp.,
The second fair use factor “calls for recognition that some works are closer to the core of intended copyright protection than others.” Campbell,
The third fair use factor requires courts to consider “amount and substantiality of the portion used in relation to the copyrighted work as a whole.” 17 U.S.C. § 107. “The third factor asks whether the secondary use employs more of the copyrighted work than is necessary, and whether the copying was excessive in relation to any valid purposes asserted under the first factor.” Authors Guild, Inc.,
Sirius leans heavily on the fourth fair use factor, “the effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107. This factor “requires courts to consider not only the extent of market harm caused by the particular actions of the alleged infringer, but also whether unrestricted and widespread conduct of the sort engaged in by the defendant would result in a substantially adverse impact on the potential market for the original.” Campbell,
Sirius makes non-transformative use of Flo and Eddie’s recordings and does so for commercial gain. It is, therefore, “common sense[ ],” id., that Flo and Eddie would suffer market harm when Sirius takes its property and exploits it, unchanged and for a profit. That exploitation “supersedes the objects of the original.” Id...
Sirius responds to this common-sense conclusion with two points: (1) Flo and
First, discovery on damages has not yet been conducted. The evidence might ultimately show that Flo and Eddie has lost fewer sales than one might expfect as a result of Sirius’ unauthorized copying and public performances of their recordings. But it is beyond cavil that Flo and Eddie has hereto been unable to obtain any money from the broadcasting of their sound recordings; if its common law copyright had been recognized, plaintiff could and undoubtedly would have charged Sirius something to broadcast them.
Second, Flo and Eddie describes the fourth fair use factor too narrowly. The fourth factor allows courts to consider not only presently existing markets, but also “potential” or “reasonable, [ ] likely to be developed markets.” Swatch Grp. Mgmt. Servs. Ltd. v. Bloomberg L.P.,
The fourth factor also requires courts to consider “whether unrestricted and widespread conduct of the sort engaged in by .the defendant would result in a substantially adverse impact on the potential market for the original.” Campbell,
3. Sirius Engaged in Unfair Competition
Unfair competition is an “adaptable and capacious” tort that “has been broadly described as encompassing ‘any form of commercial immorality.’ ” Roy Exp. Co. v. Columbia Broad. Sys., Inc.,
Flo and Eddie’s claim involves misappropriation. In particular, it argues that Sirius has taken and used the Turtles recordings — its property — to compete against it. Sirius does not truly dispute that it has “tak[en] and use[d]” Flo and Eddie’s recordings. Instead Sirius raises two objections to Flo and Eddie’s unfair competition claim.
Second, Sirius argues that Flo and Eddie has not suffered any competitive injury. It is now well established that “the existence of actual competition between the parties is no longer a prerequisite” to sustaining an unfair competition claim. Metro. Opera Ass’n,
Flo and Eddie has satisfied the competitive injury requirement. As I explained when discussing fair use, it is a matter of economic common sense that Sirius harms Flo and Eddie’s sales and potential licensing fees (even if the latter market is not yet extant) by publicly performing Turtles sound recordings. Evidence of the extent of that loss has not yet been presented because discovery has not yet been conducted on damages.
VI. Flo and Eddie’s Assertion of its Common Law Copyright Is Not Barred by the Dormant Commerce Clause
Finally, Sirius argues that Flo and Eddie’s claims are barred by the Dormant Commerce Clause. Sirius is wrong.
The Constitution grants to Congress “Power ... To regulate Commerce ... among the several States .... ” U.S. Const, art. I, § 8. Although the Commerce Clause is written as an affirmative grant of power to Congress, the Supreme Court has held that it includes a negative or “dormant” implication that states may not interfere with interstate commerce. Healy v. Beer Inst., Inc.,
States may run afoul of the Dormant Commerce Clause’s implied limits on their power in several ways: by discriminating against out-of-state goods, see, e.g., Wyoming v. Oklahoma,
Flo and Eddie argues that-the Court need not reach the constitutional question because Congress has authorized New York to regulate pre-1972 sound recordings.
It is hornbook law that “Congress may authorize the States to engage in regulation that the Commerce Clause would otherwise forbid.” Maine v. Taylor,
Flo and Eddie claims to find unambiguous Congressional authorization for New York’s common law copyright scheme to be exempted from the implied limitations of the Commerce Clause in 17 U.S.C. § 301(c), which reads in full:
With 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. The preemptive provisions of subsection (a) shall apply to any such rights and remedies pertaining to any cause of action arising from undertakings commenced on and after February 15, 2067. Notwithstanding the provisions of section 303, no sound recording fixed before February 15, 1972, shall be subject to copyright under this title before, • on, or after February 15, 2067.
In one of the two companion cases between Flo and Eddie and Sirius, my colleague in the District Court for the Central District of California found that § 301(c) unambiguously authorizes Flo and Eddie’s companion California-law action. In a footnote, it dismissed with almost no discussion a Dormant Commerce Clause challenge similar to the one Sirius raises here, stating that “Because Congress specifically authorized protection of pre-1972 sound recording rights by the states in 17 U.S.C. § 301(c), the California statute protecting those rights is not subject to the Commerce Clause.” Flo & Eddie Inc. v. Sirius XM Radio Inc., No. CV 13-5693,
■ However, I do not find the California Court’s analysis persuasive, as it does not explain why the cited statute qualifies as a Commerce Clause exemption. And Flo and Eddie cites no legislative history or case law indicating that Congress intended to eliminate Dormant Commerce Clause scrutiny for state common law copyright. Instead, Flo and Eddie emphasizes the word “any,” which it argues is an indication that Congress intended to permit “all” state statutes regulating copyright.
I do not read the cited section as Flo and Eddie does. I note that § 301(c) is contained in the section of the federal copyright law that addresses the law’s preemptive scope. Thus, the language cited by Flo and Eddie could plausibly be interpreted, not to allow states to impose otherwise unconstitutional burdens on interstate commerce, but only to limit the scope of federal copyright law — by excluding, for a period of time, otherwise preempted state laws from the preemptive reach of 17 U.S.C. § 301(a). Under this interpretation, although § 301(c) broadly reaches “any” state right or remedy, it shields state regulation only from statutory preemption, not from Commerce Clause scrutiny.
The Supreme Court has construed an analogous statute in this very manner when analyzing a Dormant Commerce Clause challenge. In New England Power Co. v. New Hampshire,
The Court held that § 201(b) did “[n]othing ... to alter the limits of state power otherwise imposed by the Commerce Clause,” but “simply save[d] from pre-emption under Part II of the Federal Power Act such state authority as was otherwise lawful.”’ Id. (internal citations and quotation marks omitted). So it is with 17 U.S.C. § 301(c). Like the statute at issue in New England Power, § 301(c) is framed as a limitation on preemption, not a relaxation of Commerce Clause limitations. That interpretation is even more persuasive here because, unlike in the statute analyzed in Neiv England Power, § 301(c) makes no explicit reference to any sort of interstate commerce.
Even if the matter is not free from doubt, at the very least it is reasonable to interpret § 301(c) as a provision about federal statutory preemption, and not as an authorization for states to interfere with interstate commerce. That being so, § 301(c) does not “unambiguously],” Wyoming v. Oklahoma,
Therefore, and applying the reasoning of New England Power, I decline to adopt Flo and Eddie’s interpretation of § 301(c).
However, Sirius’s Dormant Commerce Clause challenge fails for a different reason: New York does not “regulate” anything by recognizing common law copyright. The issue is nothing more than a red herring.
The Clause itself “withholds from the states[,] the power to regulate Commerce among the several States.” SSC Corp. v. Town of Smithtown,
Typically, courts have applied that principle in the context of the market participant exception, holding that states do not “regulate” commerce by actively participating in commercial markets. See, e.g., SSC Corp.,
But it is not only market participation that falls outside Dormant Commerce Clause scrutiny. In Sherlock v. Alling, 93 U.S. (3 Otto) 99,
The Court explained that “General legislation ... prescribing the liabilities or duties of citizens of a State ... is not open to any valid objection because it may affect persons engaged in foreign or inter-State commerce.” Id. Otherwise, “Objection might with equal propriety be urged against legislation prescribing the form in which contracts shall be authenticated, or property descend or be distributed on the death of its owner, because applicable to the contracts or estates of persons engaged in such commerce.” Id. Since Sherlock was decided, courts have rejected Dormant Commerce Clause challenges for the reasons it cites. See, e.g., Atl. Coast Line R. Co. v. Mazursky,
What Sirius objects to is a “general principle respecting the liability of all persons within the jurisdiction of’ New York. Sherlock, 93 U.S. (3 Otto) at 103. In particular, Sirius objects to property law principles that establish liability for infringing another party’s copyright. But that property law principle is not a state-imposed regulation — even when applied to public performances by a national broadcaster. Sirius has not cited, and the Court has not found any cases holding that a state’s general property law and associated liability principles could, in and of themselves, violate the Dormant Commerce Clause.
Holding Sirius liable might affect interstate commerce — just as a finding of liability did in Sherlock. Id. at 103. But concluding that Sirius is liable under New York property law principles would not amount to a “regulation” of interstate commerce by New York. It would, therefore, not give rise to a Dormant Commerce Clause claim.
Sirius is correct that this holding is unprecedented (aside from the companion California case, which reached the same result), and will have significant economic consequences. Radio broadcasters — terrestrial and satellite — have adapted to an environment in which they do not pay royalties for broadcasting pre-1972 sound recordings. Flo and Eddie’s suit threatens to upset those settled expectations. Other broadcasters, including those who publicly perform media other than sound recordings, will undoubtedly be ■ sued in follow-on actions, exposing them to significant liability. And if different states adopt varying regulatory schemes for pre-1972 sound recordings, or if holders of common law copyrights insist on licensing performance rights on a state-by-state basis (admittedly, an unlikely result, since such behavior could well cause broadcaster to lose interest in playing their recordings) it could upend the analog and digital broadcasting industries.
But in the end, all this case presents me with is a suit between private parties seek
CONCLUSION
For the foregoing reasons, Sirius’s motion for summary judgment is DENIED. The Clerk of the Court is directed to remove Docket # 46 from the Court’s list of pending motions. Sirius is ORDERED to advise the Court by Friday, December 5 of any remaining disputes of material fact that would require a trial. Otherwise, the Court will enter summary judgment in favor of Flo and Eddie as to liability and proceed to an inquest on damages.
Notes
. Flo and Eddie describes the five-hour time-shifting as Sirius’s "On Demand" feature. Although the parties are not entirely clear, it appears that "On Demand” and “Start Now” are separate features. The allegedly unauthorized copy made for time-shifting purposes is properly referred to as "Start Now.” (See Geller Decl., Ex. 8; Smith Decl. ¶ 33.)
. One very recent decision of the New York State Supreme Court appears to recognize just the sort of public performance right that Sirius says does not exist. See Capitol Records, LLC v. Harrison Greenwich, LLC,
. The history of Congressional grants of pub-lie performance rights is convoluted. The
By the time Congress enacted copyright protection for sound recordings, public performance rights were firmly entrenched for musical compositions and dramatic compositions: the two kinds of works to which public performance rights could sensibly be provided. It was thus an accepted part of the background law that public performance rights would, absent a deliberate effort to exclude them, extend to sound recordings. That principle applies with even more force to common law copyright, which generally includes fewer limitations on exclusive rights than does federal statutory law. See Shyamkrishna Balga-nesh, The Pragmatic Incrementalism of Common Law Intellectual Property, 63 V and. L.Rev. 1543, 1563 (2010).
. Sirius frames these arguments with the general principle that federal courts should apply state common law as it currently stands — not as they think it should be. That is a correct statement of the role of federal courts. But I am not applying the law as I think it “should” be, but as I "predict how the New York Court of Appeals would resolve the ... question.” DiBella v. Hopkins,