Depending on your point of view, the settlement agreement between Flo and Eddie and Sirius XM is looking like sheer genius or fool hardy folly. 1 On June 5, 2017, a Federal Judge in the Northern District of Illinois ruled that pre-1972 sound recordings did not have performance rights under Illinois law. 2
The Plaintiffs in this case were not Flo and Eddie. The Plaintiffs in this case were Arthur and Barbara Sheridan, the owners of numerous sound recordings of the 1950’s and 1960’s, including those made by such popular artists as the Flamingos and the Moonglows. 3 Yet, like Flo and Eddie, this was filed as a class action, meaning if the Plaintiffs were successful, the rather large body of those persons owning rights in pre-1972 sound recordings would stand to benefit.
In dismissing the case, the Court never reached the issue of whether common law copyright under Illinois law included the right of public performance. Instead, it ruled that whatever common law copyrights the Plaintiffs might have had, that these rights were divested from them by the act of selling copies of the records to the general public. Further, reaching down to an Illinois State Circuit Court case, it also concludes that performance of the sound recordings divested them of common law copyright protection as well. 4
While supported by case law, this leads the court down the path to a rather curious conundrum. The Court seems to take at face value that common law copyright exists for sound recordings, but in essence rules that the copyright is then waived by any attempt to take advantage of that self-same common law copyright.
In other words, yes you have rights, until you want to use them.
So, consider the plight of the Plaintiffs. What protection can they get for their sound recordings? They can’t go to the Copyright Office because Federal law does not recognize that there are any rights in pre-1972 sound recordings. They seem to have common law copyrights, but these rights are then waived by selling copies or performing them over the radio. So basically, the Plaintiffs are limited to sitting in the confines of their own home playing their own recordings (not too loudly) for their own amusement.
That’s not much of a right.
Further undercutting the case was the fact that the Plaintiffs relied heavily on New York case law regarding common law copyrights in sound recordings. As recounted earlier on the blog, the New York Court of Appeals proceeded to throw them under the bus 5 after the briefs were submitted here.
The Plaintiffs alleged other claims, including unfair trade practices, but these theories fared no better.
“‘The recording industry and broadcasters existed in a sort of symbiotic relationship wherein the recording industry recognized that radio airplay was free advertising that lured consumers to retail stores where they would purchase recordings. And in return, the broadcasters paid no fees, licensing or otherwise, to the recording industry for the performance of those recordings.’ (citation omitted) Even today, this system survives largely intact; there is still no requirement that traditional broadcasters pay such royalties. The argument that this long-extant system exacts “draconian”—i.e., fundamentally unfair—costs is not compelling.” 6
There’s only one problem with this logic. The economics of this “symbiotic relationship” have totally changed. Physical sales have plunged. Revenues from streaming surpass physical sales. 7 If you click on the link in the footnote you will note that the Billboard article I linked to is over a year old. The old adage that radio plays equals records sales is no longer true.
The Court here, like the New York Court of Appeals sees disaster in ruling otherwise:
“But in the context of broadcasts of sound recordings, where the settled expectation of the industry has for decades been that there is no requirement to pay for the right to broadcast pre-1972 sound recordings, it cannot reasonably be said that it is fundamentally unfair for a broadcaster to operate in conformance with that status quo. To the contrary, disrupting the settled expectations of the entire music industry could unfairly impose substantial costs on myriad industry stakeholders.” 8
Wait, aren’t copyright holders (as well as taxi drivers, newspapers, bookstores, retail stores etc., etc., etc.) being told all the time that the “disruption” to their industry is a good thing? Now, when the shoe is firmly on the other foot, we are told that to recognize that artists have had certain rights for quite a long time would be too “disruptive.” To add insult to injury, the Court cites to an Electronic Frontier Foundation blog post for this proposition, which is hearsay to the Court and should be inadmissible as evidence, especially at the Motion to Dismiss stage.
To the Defendant, iHeartMedia, the glow of this win won’t last very long. The company is losing vast sums of money and according to its own reports indicate that it might be bankrupt in the next 12 months. 9
Why? Because the streaming companies are “disrupting” its business model.
- Gentlemen, Hedge Your Bets! Inside the Flo and Eddie-SiriusXM Settlement ↩
- Sheridan v. iHeartMedia 2017 WL 2424217, District Court for the Northern District of Illinois 2017. ↩
- Id. at 1 ↩
- Id. at 3 ↩
- New York Court of Appeals Says No Performance Rights for Flo and Eddie: “Poof” Goes Five Million Dollars ↩
- Sheridan v. iHeartMedia at 4 ↩
- IFPI Global Report: Digital Revenues Surpass Physical for the First Time as Streaming Explodes ↩
- Sheridan v. iHeartMedia at 6 ↩
- iHeartMedia Debt Grows, Layoffs Continue Amid Concern for Future ↩