SiriusXM Copyright Battle: What Does the Latest Ruling Mean for Digital Music?

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The Turtles in 1970.

The U.S. Federal Court decision that SiriusXM violated the Turtles' pre-1972 master copyrights by playing their music without licensing it or paying performance royalties is a big win for the music industry, but does it have meaning beyond California where the legal battle took place?

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Like all lawsuit decisions, the ruling may have legal implications for other ongoing court cases, but the ruling has just decided a battle, not the war.

That war centers on whether SiriusXM and other digital music services like Pandora, have the right to play pre-1972 recorded music without licensing nor paying royalties to record labels and the artists because -- those services argue -- the master recording copyright didn't exist until 1972 in federal law. Digital service, as part of the Digital Millennium Copyright Act, must pay master recordings rights-holders and music publishers for broadcast, unlike terrestrial radio, which only has to pay royalties to publishers. But Sirius only pays for recordings created after 1972 when federal law recognized the master recording copyright.

On the flipside, labels and artists argued that SiriusXM still had to abide by individual state law, which protects master recording copyrights in many states and thus requires royalty payment for playing those recordings.

The Copyright Royalty Board ruled that under federal law, Sirius didn't have to make such payments to SoundExchange, but the CRB didn't comment on state law, triggering a number of lawsuits on the issue. These include the one brought in California by Flo & Eddie from the Turtles, which it initially filed in state court while also filing class action lawsuits in Florida and New York federal courts, from the law firm of Gradstein & Marzano.

Besides the Flo & Eddie/Turtles class action suit, another on this issue still ongoing is between the major labels and SiriusXM. A California Judge issued a tentative ruling earlier this month in which the court was favoring SiriusXM's argument that it didn't have to license pre-1972 master recordings for broadcast performance use, nor pay for them.

That judge in that tentative ruling said that the wording in California state law on master recordings is ambiguous and may protect against unlicensed duplication and distribution, but doesn't specifically address the issue of whether it grants exclusive performance rights to the master recordings copyright owner. "Plaintiffs [the major labels] have not cited any authority for the proposition that the state law rights in pre-1972 sound recordings included rights in public performances of the sound recordings," Judge Mary Strobel wrote in denying a plaintiff motion on jury instruction.

So the federal court judge in the Flo & Eddie lawsuit ruled in favor of the position taken by artists and labels, even though there already was an interim ruling in California favoring SiriusXM's stance.

Other lawsuits on the issue include one that SoundExchange -- the federal agency charged with collecting digital royalty payments from digital services on behalf of master rights owners and artists -- filed against SiriusXM in federal court in the District of Columbia. The three major labels and ABKCO filed a lawsuit around the same issue against Sirius in California state court and against Pandora in New York state court.

According to a SoundExchange estimate, nonpayment of pre-1972 master recording royalties cost record labels and artists about $60 million -- and that's just in 2013. SiriusXM has never paid royalties for those recordings. Pandora did until a few years ago, when it also stopped making payments on them.

In the California decision that came down Monday, U.S. District Judge Phillip Gutierrez ruled against SiriusXM, saying that the service violated Flo & Eddie's master recording rights by playing Turtles records without licensing them. California state law, as it is written, gives the master recording owner exclusive performance rights, the court ruled. Consequently, the judge further ruled in Flo & Eddie's favor on all causes of action as it applied to public performance, but not to alleged reproduction copyright violations. If Flo & Eddie want to pursue their allegations of copyright, that SiriusXM was making and storing temporary copies of their music for broadcast purposes, it would have to be decided in a separate trial, the judge ruled.

In addition to potential punitive damages, SiriusXM may be on the hook to Flo & Eddie for compensatory damages going back as much as four years, under the statute of limitations in California. After damages are decided, SiriusXM can appeal the decision. It can also appeal the decision now -- before damages are awarded, but it would need the permission of the judge who made the ruling and the permission of the higher court that would hear the appeal, according to Henry Gradstein with Gradstein & Marzano.

In the meantime, the ruling could have an impact beyond California. Legal precedent from a decision in a federal court in a suit with similar issues in a another court is definitely a plus. But each state has its own copyright law, so the fight may still have to move on a state-by-state basis.

On a practical basis, SiriusXM uses satellites to broadcast its stations, so the question becomes: Could SiriusXM use its technology to geo-block California so that subscribers there don't hear pre-1972 music? Music industry executives are skeptical that Sirius could pull off such a feat.

However, it maintained in the lawsuit that it runs a national service and that whatever the court decides in California would be complied with nationwide, explained Harvey Geller of Gradstein & Marzano.

So that means SiriusXM has to either stop playing pre-1972 music or license and pay for it. If it stops playing 1972 music and replaces it with other music, it would still be on the hook for making payments for that music, so why bother risking customer satisfaction by eliminating pre-1972 recordings, industry executives contend.

Even beyond that, some contend that Judge Gutierrez ruling also widens the scope of the master recording performance right beyond the digital realm, and could also impact terrestrial radio, stadiums, clubs and bars -- any public place in California that plays pre-1972 recordings, but that doesn't currently pay royalties to labels and artists for those performances.

Sources within the major labels say they are gratified by the Judge's decision in the Flo & Eddie lawsuit, since now the judge sitting on the case filed by the major labels in California state court against Sirius will have to consider this ruling when she makes her actual decision -- or at least that is what they hope will happen.

"The Flo & Eddie judge surely read the interim ruling and said 'balderdash,'" one senior label executive tells Billboard, who hopes that the judge in the state court reconsiders the ruling she handed down last week.

But if Judge Strobel sticks to her guns and rules against the labels -- while the Flo & Eddie judgment withstands any potential SiriusXM appeals -- it could result in artists who own their own masters being paid for the digital public performance of their recordings in California, while the major labels and the artist that perform on those records receive no compensation whatsoever.