Last week’s ruling by the U.S. District Court for the Central District of California in the Flo & Eddie Inc. v. Sirius XM Radio Inc. case has sent shockwaves through the music industry, particularly in the areas of performance royalties and broadcasting, both digitally and possibly terrestrially. The ruling also may end up shooting new life into the renewed push to bring all pre-1972 sound recordings under the purview of federal copyright law.
I was intrigued at the possible bases for remedies in the wake of the ruling because the causes of action are rooted in California law, not in the somewhat cut-and-dry statutory damages scheme of $150,000 for willful infringement under federal law. Clearly the amount of damages will be highly disputed and probably require a trial. Billboard already did a reasonable ball park dollar figure damages estimate for all pre-1972 recordings based on licensing fees paid by Sirius, so I have set out to present an overview of the damages (and other remedies) that flow from the causes of action relied on by the plaintiff as a way to determine the contours of the battle that lay ahead.
INFRINGEMENT OF PUBLIC PERFORMANCE AND REPRODUCTION RIGHTS
First, it is important to note that Flo & Eddie alleged two distinct unauthorized uses of its recordings: public performance for broadcasting and streaming, and reproduction for what are essentially back-end uses such as copying to databases, libraries, and “play out servers.” The court ruled that no facts were in dispute as to infringement of the public performance right. However, the court found genuine issues of fact regarding the reproduction infringement allegations, leaving this issue still undecided as to liability and damages. While the public performance infringement has garnered more notoriety and will likely lead to more damages, the reproduction issue deserves resolution because without the back-end processes that involved copying the recordings to databases and servers, the front end public performance would not have been possible or at least not as widespread.
RELIEF ASKED FOR IN THE COMPLAINT
In the original complaint filed in Los Angeles Superior Court (the case was later removed to federal court) the plaintiff said that “compensatory and punitive damages” and injunctive relief would be necessary to stem the irreparable harm caused by Sirius XM. The prayer for relief specifically asked for (1) $100,000,000 in compensatory damages, (2) punitive and exemplary damages to be determined at trial, and (3) temporary, preliminary, and permanent injunctions in all three of the causes of action (misappropriation, unfair competition, and conversion). The plaintiff asked for restitution and the imposition of a constructive trust in the unfair competition and conversion claims. Lastly, a prayer for relief was made for “reasonable attorneys’ fees and costs” and prejudgment interest.
REMEDIES ALLOWED UNDER EACH CAUSE OF ACTION
Damages for Copyright Infringement under California Law: The main statute relied on by the plaintiff was Cal. Civ. Code §980(a)(2), which grants to authors of sound recordings “fixed prior to February 15, 1972” an “exclusive ownership.” However, unlike federal copyright law, §980 offers no damages provisions. Instead, damages are determined using Cal. Civ. Code §3333, a catch-all for torts other than breach of contract (including the plaintiff's misappropriation claim) that provides:
For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.
The case of Read v. Turner, 239 Cal.App.2d 504, 48 Cal. Rptr. 919 (1966) applied this code section to copyright infringement, and identified the following factors to consider in determining copyright damages:
- Loss in value of the subject matter of the copyright because of the infringement
- Value of the work to the owner in creating it
- Value of its use by another
- Loss of profit sustained by the owner on account of the infringement
Remedies under California’s Unfair Competition Law §17200 (“UCL”): §17200 et seq. offers private litigants two possible remedies, injunctive relief and restitution, so damages will not flow from this cause of action for the plaintiff. The court held that at a minimum “Flo & Eddie suffered economic harm in the form of foregone licensing or royalty payments for the unauthorized performances of its sound recordings,” which helps the plaintiff overcome the “injury in fact” hurdle imposed on §17200 actions by Prop. 64. Two other important notes about §17200: its remedies are cumulative to those available under other laws (see People v. Los Angeles Palm, Inc., 121 Cal. App. 3d 25, 175 Cal. Rptr. 257 (1981)), and attorneys’ fees are not recoverable (Patchmayr Gun Works, Inc. v. Olin–Mathieson Chem. Corp., 502 F.2d 802, 810 (9th Cir. 1974)).
Conversion damages: Damages for conversion are covered by Cal. Civ. Code §3336, which states:
The detriment caused by the wrongful conversion of personal property is presumed to be:
First - The value of the property at the time of the conversion, with the interest from that time, or, an amount sufficient to indemnify the party injured for the loss which is the natural, reasonable and proximate result of the wrongful act complained of and which a proper degree of prudence on his part would not have averted; and
Second - A fair compensation for the time and money properly expended in pursuit of the property.
Although the language of the statute limiting damages to the value of the property “at the time of the conversion” may sound problematic, the court found the infringement to be continuous, noting that every play of a Turtles’ song by Sirius XM was a “wrongful disposition.”
Attorneys’ Fees: Attorneys’ fees may be problematic. As previously stated, §17200 et seq. does not allow awards of attorneys’ fees. Unlike federal copyright law, §980 does not have a provision for attorneys’ fees. The court may have discretion based on Cal. Code Civ. Proc. §1021.5:
Upon motion, a court may award attorneys' fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any.
Section (a) will probably yield a vigorous opposition if the plaintiff makes a motion for attorneys’ fees. One may argue that harm could actually result from the case given the fact that there have been rumblings about Sirius and other services simply taking pre-1972 recordings out of circulation to avoid paying future licensing fees (but that could be a bluff).
Punitive/Exemplary Damages: Exemplary damages could be the wildcard in the remedies equation for Sirius XM. Under Cal. Civ. Code §3264:
In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.
The clear and convincing standard alone is a steep hill for the plaintiffs to climb, let alone showing oppression, fraud, or malice. If Flo & Eddie had approached Sirius XM to complain about the unauthorized performances but Sirius had turned a deaf ear and continued to infringe, there may have been some factual basis for the plaintiff's complaint allegations of oppression, fraud and/or malice." However, Flo & Eddie were aware that Sirius XM played The Turtles' songs for over seven years, and prior to the lawsuit had never asked Sirius XM to stop performing their songs.
WHAT THE COURT WILL LIKELY DO
Clues were given in the summary judgment opinion as to how to quantify damages. In its conversion analysis, the court found that the prima facie element of damages was established by “license fees that Sirius XM should have paid Flo & Eddie in order to publicly perform its recordings.” Misappropriation requires a showing of injury, which the court found in the “foregone licensing or royalty payments that Sirius XM should have paid.” Therefore, it is likely that the parties will fight over what a reasonable licensing fee should have been, which may be hard because it is unclear whether SoundExchange tracks pre-1972 plays. Given the technology involved, it seems that there should be some way to track how many times the songs in question were accessed at the Sirius servers or other distribution centers without relying on third-party monitoring.
Whatever measure is ultimately decided on, the final determination of damages in this case (if the ruling survives appeal) will have a concrete effect on digital broadcasting for years to come.