Copyright, Clearances and Concert Recordings: ABKCO Music, Inc. v. Sagan

Bill Graham was one of the great concert promoters of the twentieth century. During a career that spanned from the late 1960s until his death (in a helicopter crash) in 1991, Graham worked with The Grateful Dead, Jimi Hendrix, Janis Joplin, Neil Young, The Who, Jefferson Airplane, Santana, Bob Dylan ... and anyone else who mattered. Described (by actor Peter Coyote) as “a cross between Mother Teresa and Al Capone” and (by the artist Grace Slick) as "one of us and one of them ... the only man I know who lived in easily paradox," Graham was, it would seem, a funny, charismatic and complicated person. 

Over the decades, Graham amassed an impressive collection of concert memorabilia (see Bill Graham Archives v. Doris Kindersley Limited) as well as video and audio recordings of many of the concerts he promoted. When he made those recordings, Graham may or may not have secured permission from the artists (surely they were aware they were being recorded?); he probably didn't get waivers from their record labels (most, if not all, of the artists would have been subject to exclusive recording contracts); and he definitely didn’t get licenses from the owners of the compositions. (Record now, seek clearances later!) As a result, one of the most valuable collection of concert recordings in the world slumbered in Graham’s vault for decades.

In 2002, defendant William Sagan acquired these recordings when he purchased the Bill Graham Archives. Sagan can’t claim he wasn’t warned. In the purchase agreement, the seller assigned to Sagan "all rights" in the recordings but only "to the extent that either Seller or any of its Affiliates possesses such rights.” The seller also made “no representations regarding whether the [recordings] or their past or future use or exploitation infringed or infringes on the Intellectual Property rights of any person.” In other words, the seller granted Sagan rights on a quitclaim basis.

Eventually, Sagan released a number of the recordings through digital download and streaming services. In 2015, a group of music publishers sued, alleging that Sagan and entities he controlled had infringed upon the copyrights in 197 songs performed in the recordings. The publishers sought statutory damages totaling about $30 million and a permanent injunction. 

Following discovery, the district court granted in part the plaintiffs' motion for summary judgment, finding that:

1. The defendants did not hold valid compulsory, negotiated or implied licenses authorizing the distribution of recordings of the songs;
2. Infringement of 167 of the songs had been willful;
3. Disputed issues of fact precluded a determination as to whether the infringement of the remaining 30 songs was willful; and 
4. A preliminary injunction was not appropriate because the plaintiffs could be made whole with monetary compensation, and the public had an interest in accessing the collection of “iconic” recordings. 

After a nine-day trial (and less than an hour of deliberations), the jury found that the infringement with respect to the 30 works had been non-willful and awarded the statutory minimum of $750 per work. For the remaining 167 works that the district court had found to be willfully infringed, the jury awarded damages of $1,000 per work (instead of the statutory maximum of $150,000 per work sought by the plaintiffs). In total, the jury awarded the plaintiff $189,500 - a fraction of what the plaintiffs had sought. (The district court also awarded about $2.4 million in attorneys' fees.)

Last month, the Second Circuit issued an opinion that affirmed in part and reversed in part the decisions and verdict below. I am going to focus on the most interesting aspects of the court's ruling. Be warned:  this is going to be a wonky, nerdy, wordy post.

Section 115 Compulsory Licenses

While the general rule is that the owner of the copyright in a work has the exclusive right to control where, when and how it is distributed, there are exceptions. One exception, found in 17 U.S.C. § 115, allows anyone to obtain a compulsory statutory license to release "phonorecords" of "non-dramatic musical works" - without permission of the copyright owner - as long as (1) the copyright owner previously authorized the release of a phonorecord embodying the work, and (2) the person seeking the license complies with certain requirements. Thanks to § 115, artists have a statutory right to create cover versions of old songs, making it one of my favorite provisions in the Copyright Act. I love it when a cover - whether recorded in a studio or live at a concert - makes you experience a familiar song in an entirely new way. (See, e.g., Johnny Cash's version of Nine Inch Nail's "Hurt" and Everything But the Girl's rendition of Tom Waits' "Downtown Train") When a cover is so bad that it makes you cringe - see, e.g., William Shatner's version of The Beatles’ "Lucy in the Sky with Diamonds" - it makes you appreciate the artistry of the original all the more. Either way, the music-loving public benefits from this compulsory licensing scheme.

The defendants argued that their distribution of recordings of the plaintiffs’ compositions was authorized because they had secured compulsory licenses under § 115. To prevail with that argument, the defendants had some hoops to jump through.

Can Audiovisual Recordings Qualify as "Phonorecords"? 

The majority (nearly 75%) of the compositions at issue in this case were distributed by the defendants as part of audiovisual recordings rather than as audio-only recordings. The parties disagreed as to whether audiovisual recordings of live musical performances constitute "phonorecords" that are subject to § 115's compulsory license provisions. 

The Copyright Act defines "phonorecords" as:

"[M]aterial objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed ..., and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term “phonorecords” includes the material object in which the sounds are first fixed." (17 U.S.C. § 101.)

The defendants argued that Congress had intended the highlighted exclusion to apply only to audiovisual recordings in which separately-recorded audio is later synched (or added) to the visuals (like where a pre-existing pop song is added to a scene in a movie), and not to audiovisual recordings where the audio and the video are captured simultaneously (like in a concert video). This was the case, the defendants reasoned, because, in the definition's first sentence, sounds can only "accompany" a motion picture if those sounds existed separately from that motion picture in the first place. The defendants also argued that their audiovisual works qualified as phonorecords under the definition's second sentence because they were the "material objects" in which the sounds (i.e., the plaintiffs' compositions) were "first fixed." 

The district court and Second Circuit rejected this interpretation, concluding that the first sentence of the definition unambiguously excludes all types of audiovisual recordings. The court did not believe that the word "accompanying" indicated an intent by Congress to distinguish between audiovisual recordings that captured audio and video simultaneously and those where the music was added later; as the court put it, "sound can 'accompany' an image simultaneously as well as by later addition." Finally, the court didn't buy that the second sentence of the definition was intended to expand the categories of works that constituted phonorecords:

"As the district court correctly recognized, ... the use of the definite article ‘the’ to reference the concepts ‘material objects’ and ‘sounds’ can only be read to refer to these terms as previously defined in the first sentence, that is to say, as expressly excluding audiovisual works.” (Cleaned up.)

Were the Defendants' Audio Recordings "Fixed by Another"?  fixed by another" unless "(i) such sound recording was fixed lawfully; and (ii) the making of the phonorecords was authorized by the owner of the copyright in the sound recording." (See § 115(a)(1)(B).) In the district court, the parties battled over whether or not the defendants' recording had been "fixed lawfully." The district court ultimately agreed with the publishers that they had not been fixed lawfully because it is a violation of state and federal anti-bootlegging laws to record a live musical performance without the consent of the performers involved (see 17 U.S.C. § 1101(a) and N.Y. Penal Law § 275.15), and the defendants had failed to provide proof that the performers had consented to being recorded. 

The district court held that defendants’ distribution of the 51 musical works that were released in audio-only recordings was unlicensed because defendants had failed to satisfy § 115’s substantive requirements. Specifically, the compulsory license provisions do not apply to a person who seeks to “duplicat[e] a sound recording

The Second Circuit panel reversed, holding that because the sound recordings in question had been fixed by the defendants' predecessor (i.e., the seller), they had not “fixed by another”; and because they had not been "fixed by another," the requirement in § 115(a)(1)(B) that the recordings be "fixed lawfully" did not apply. As the court explained:

"It is undisputed that the seller would not be subject to the substantive requirements of Section 115. To find that defendants (as purchasers) would be saddled with these additional requirements would impair the transferability of these sorts of works because every trade would thereby impose new burdens and diminish value. Nothing in the text requires that result."

As a result, the panel did not need to reach the question of whether the sound recordings had been "fixed lawfully." However, in an interesting footnote, the Second Circuit questioned the district court's assumption that it was unlawful, at the time these recordings were made (decades ago), to record an artist's musical performance without the artist's consent:

"The basis for that assumption is questionable: the two statutes on which the district court relied – the federal and New York anti-bootlegging acts – were enacted many years after the recordings at issue were fixed. See Pub. L. No. 103-465, 108 Stat. 4809 (1994) (codified at 17 U.S.C. § 1101); 1990 N.Y. Sess. Law Serv. 460 (McKinney). Unless another law applied at the time the recordings were fixed, then it does not appear to have been unlawful for the concert promoters to record the concerts without the performing artists’ consent."

Did the Defendants Provide Untimely Notices for Statutory Licenses? Section 115 requires a person seeking to obtain a compulsory license to follow specified procedures, including providing certain notices to the copyright owner. (See 17 U.S.C. § 115(b).) The publishers argued that the defendants had failed to serve timely notice for at least one recording associated with each musical work and that this failure provided an independent basis for affirming the grant of summary judgment. The Second Circuit disagreed, finding that fact issues remained as to whether the defendants had provided § 115 notices before distributing the recordings. The panel also raised the possibility that, even if certain notices were untimely - i.e., because they were sent after the defendants began distribution of the applicable recordings - a late notice that satisfied all of § 115's requirements might result in the issuance of a prospective compulsory license: 

"We therefore remand to the district court for further fact finding on [the timeliness] issue. In so doing, we acknowledge that the factual dispute may be affected by a threshold legal question that arises from Section 115’s command that ‘failure to serve or file the notice of intention ... forecloses the possibility of a compulsory license.’ 17 U.S.C. § 115(b)(2). Specifically, the question is whether one is permanently barred from obtaining a valid compulsory license for a musical work that one had exploited before sending notice and in the absence of a negotiated license. Section 115(b)(4)(A) might alternatively be read to prevent only retroactive issuance of a compulsory license that would otherwise absolve the licensee from suffering the consequence of infringement; in that case, a prospective license could still be acquired, so long as the compulsory licensing requirements are fulfilled. But this issue has not been briefed, so we merely raise it for further consideration in the district court."

It will be interesting to see how the district court sorts all this out on remand (assuming the case doesn't settle).

Implied Licenses for the Audiovisual Works?

The defendants argued that even if they had failed to obtain compulsory licenses to release the audiovisual recordings of the compositions, the plaintiffs' had granted an implied license authorizing the use. Specifically, the defendants contended that (1) they made royalty payments to the publishers, (2) the publishers were, therefore, aware that their compositions were being used, and (3) the publisher's acceptance of payment constituted consent to the arrangement, or a "meeting of the minds" sufficient to give rise to a non-exclusive license.

While the Copyright Act requires that a transfer of copyright ownership or an exclusive license be in writing, a non-exclusive license can be granted verbally or inferred through conduct. See 17 U.S.C. § 204(a) (a "transfer of copyright ownership ... is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed"); 17 U.S.C. § 101 ("transfer of copyright ownership" defined to exclude non-exclusive licenses). 

The Second Circuit has not yet ruled definitively on the precise circumstances under which an implied non-exclusive license can be found, and the panel refused to use this case as an opportunity to do so. (See this post and this post for how other circuits approach the issue.) Instead, the panel noted that all approaches used by its sister circuits require a “meeting of the minds between the parties to permit the particular usage at issue." Here, because of the "mechanics of compulsory licensing," there was no such meeting of the minds. As the court explained:

"The Publishers grant thousands of compulsory licenses annually. Not by choice; it is (as the name says) compulsory. Payment notifies the Publishers that a compulsory license has issued, but it does not communicate how the license will be used. The reasonable assumption is that use will be in accord with the requirements of Section 115, which, at the least, means that the musical works will not be used in any audiovisual recordings."

In other words, the publishers’ acceptance of those royalties - which they understood to be paid pursuant to valid compulsory licenses under § 115 - cannot give rise to an inference that the publishers consented to any use of their songs that exceeded the scope of what is permitted under § 115 - such as distribution of their songs as part of audiovisual works. 

No Injunction?

Finally, the panel affirmed the district court's decision not to issue an injunction. To obtain an injunction, the publishers were required to demonstrate: “(1) that they have suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiffs and defendants, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” 

The first two factors favored the defendants, since the publishers had failed to provide a "factual (or theoretical) support" for their contention that the continued use of the recordings "threatens [their] relationships with ... existing licensees, and undermines their negotiating leverage with prospective licensees"; moreover, the "record gives no indication that defendants will continue their infringing conduct." The third factor "tilt[ed]" towards the defendants, given the substantial investment they had made in securing a library of these recordings. And the final factor "also favor[ed] defendants because the public has an interest in accessing 'iconic' recordings of historical importance."

Bottom Line

As this case illustrates, music clearances are … complicated. You need to know copyright law, including the different treatment afforded to compositions and sound recordings under U.S. law. You need an understanding of certain industry customs - such as the role played by performing rights organizations and the Harry Fox Agency in the music ecosystem. You need familiarity with the standard provisions in agreements between composers and publishers and between recording artists and labels. In the case of live recordings, you need to be know federal and state anti-bootlegging laws. And, since most sound recordings in the United States are produced within the jurisdiction of the entertainment unions – SAG-AFTRA and the American Federation of Musicians - you need to understand when payments to singers and musicians are triggered. 

Novices, beware!

ABKCO Music, Inc. v. Sagan, 

__ F.4th __, 2022 WL 5237636 (2nd Cir. Oct. 6, 2022)