In Sirius XM Lawsuits, Settlement Might Cement Digital Music Monopolies

Sirius XM Satellite Radio’s recent settlement with ex-members of the 60s rock group The Turtles over royalty payments for old recordings has the potential to solidify the dominant position of big music services like Sirius XM, at the expense of new music services, independent and Web-based radio stations, and the listening public. If approved by the court, the settlement would give Sirius XM permission to stream a vast catalogue of music recordings made before 1972 while other music services and radio stations remain at legal risk.

The litigation campaign by Flo & Eddie, Inc., a company made up of former members of the 1960’s band the Turtles, started three years ago with class action lawsuits in California, New York, and Florida. While most creative work in the U.S. is governed by the federal Copyright Act, sound recordings made before February 15, 1972 are left to state laws. And those state laws, created in a pre-digital era, were silent about whether they included a “public performance” right—i.e., whether the copyright holder can demand royalties when their songs are played on the radio, or even keep them off of the radio altogether.

In general, copyrights on sound recordings in the U.S. don’t come with a public performance right. That’s why AM and FM radio stations have never paid or sought permission from artists and record labels. There’s a limited right that covers “digital audio transmissions” such as Internet and satellite radio, but even that right doesn’t allow a copyright holder to keep her music off the air. A government body, the Copyright Royalty Board, sets the rules and rates for Web and satellite radio.

Pre-1972 recordings fall into a different category, governed by a patchwork of state laws and court decisions. The class action suits by Flo & Eddie claimed that Sirius XM and Pandora, two of the largest digital music services, had to pay royalties for every play of a pre-1972 recording.

EFF has been involved in these suits at every level, filing amicus briefs to explain some of the pitfalls that could come from creating new state copyright law rights. Most recently, we filed a brief with the Florida Supreme Court, aided by copyright and appellate specialist Dineen P. Wasylik. Our brief argues that the purpose of copyright law is to create an incentive for artistic creation. In the words of the U.S. Constitution, its purpose is to “Promote the Progress of Science and useful Arts.” Since state law only applies to recordings that are over 45 years old, creating new rights in those recordings wouldn’t encourage new recordings, which are governed by federal law alone.

EFF’s brief also pointed out a potential pitfall that would come from creating broad new rights through a court case. Most expansions of copyright over the past century have come from Congress (and occasionally from state legislatures). Those expansions are almost always coupled with careful limitations, like the fair use doctrine, and the statutory license that lets Internet radio stations stream a wide variety of music with minimal transaction costs. Courts, by contrast, can only rule on the facts in front of them, which in these cases involve large, established music services. Creating a new right to control performances through a court case means creating a right without specifying what its limitations will be. And a settlement between Sirius XM and recording artists is likely to be a deal that puts Sirius XM in a privileged position, likely paying lower royalty rates than a smaller competitor could negotiate, and on more favorable terms.

As it turns out, the parties to these lawsuits didn’t even wait to find out whether California, New York, and Florida law recognize an exclusive right of public performance. On the same day that EFF submitted its brief in Florida, Flo & Eddie and Sirius XM filed a settlement proposal with the federal court in California. Under that proposal, Sirius XM will pay pre-1972 copyright holders a lump sum of $25 to $40 million, and an ongoing royalty of up to 5.5% of revenues. The basic question of whether a public performance right exists at all remains unanswered, and appeals in all three states are continuing.

The landscape is now more uncertain for music services and radio stations who aren’t called Sirius XM. The different states could still reach different answers to the question of whether those services must pay royalties for the performance of pre-1972 recordings (lower courts have already come down differently in each state, though the decisions are still up on appeal). If any of them decide that state law covers those performances, music services and radio stations will have to begin the complex process of negotiating terms and royalties—and that process will likely involve more expensive litigation. Sirius XM, meanwhile, has already secured permission to play any pre-1972 recording on its service at predictable royalty rates for years to come, giving it a major advantage over new music services.

Another serious problem looms: a lower court ruling in the California case implies that state copyright law contains none of the exceptions and limitations of federal law, including fair use. As we explained in an earlier brief, fair use is required by the U.S. Constitution, in order to make copyright law compatible with the First Amendment. This needs fixing, but if Flo & Eddie prevail in their appeals, the fix may not come quickly.

One solution to this mess is for the various courts to rule that no state-law right of public performance exists—in other words, to confirm the assumptions that the entire music industry has operated under for decades. Another is for Congress to follow the Copyright Office’s recommendation from a 2011 report: place all sound recordings under federal law, regardless of when they were made.