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Some Notes on Capitol Records, Inc. v Naxos of America Inc. - by Brendan Scott
Wednesday, April 13 2005 @ 11:56 AM EDT

Most lawyers, if they are any good, will try to keep you from ever having to step foot in a courtroom. You'll understand why, when you read about Capitol Records, Inc. v. Naxos. It's a jaw-dropping decision that is so weird, when a journalist first sent it to me, I thought it was a joke.

Weird things can happen in courtrooms, which is why you should try to stay out of them, and that seems especially true when Beatles music is soon to enter the public domain in the UK. When weird things do happen, the case generally proceeds to the Supreme Court. This case is very likely to be appealed, but while we wait, we are entertained by the nauseating prospect -- unless you are a record company -- of perpetual common law copyright on sound recordings dating from pre-1972, thanks to New York State common law. Of course, it's a record company that is involved. Two of them, actually. God forbid music in the public domain since the 90s in the UK should be available to anyone without paying a record company first. Here's part of a commentary by Norman Lebrecht, "Whose Music Is It Anyway?", that explains the facts of the case:

Over the past decade we have enjoyed a renaissance in the appreciation of historic performances. Naxos, the impulse-buy classical label which sells discs at five pounds, dollars or euros the world over has been reissuing early recordings that had been long deleted by the music biz, which functions on a flow of hyped-up novelty. Ownership of these antiques was uncontested, their perceived value meagre.

Using mint exemplars from Yale University Library, Naxos restored to circulation the imposing sound of Rachmaninov in his own concertos and the more hesitant tones of Prokofiev at the piano. The proud voices of Elisabeth Schumann and Kirsten Flagstad found new admirers; the formative conductors Felix Weingartner and Willem Mengelberg returned to our shelves. These recordings had gathered dust for a generation. Some had never been transferred onto LP, let alone CD. Their restoration was revelatory.

So long as Naxos messed with esoterica, the major labels turned a deaf ear. But Klaus Heymann, the Hong Kong-based label’s German owner, was keen to prove a point. He encroached on such EMI memorabilia as Menuhin in the Elgar concerto, Artur Schnabel in the Beethoven sonatas and Casals in the Bach suites, which had never fallen out of print.

Suddenly, 50 years of mechanical copyright, which is the European norm, did not seem such a long time. Kathleen Ferrier, one of Decca’s all-time bestsellers, is out on Naxos. The debut operas of Maria Callas – I Puritani, Norma, La Sonnambula – are also there and Glenn Gould’s inimitable 1955 account of the Goldberg Variations will fall free come New Year. Callas still sells more CDs than any opera singer alive today and Gould’s icon has pervaded contemporary art and film. Naxos may have begun with educative intent but now it was peddling prime product.

EMI took the case to the US, where mechanical copyright is protected for 75 or 95 years at movie industry insistence. The victory won last week by its Capitol subsidiary has drastic implications. Even if copyright expires, the court ruled, common law can be applied to assert the rights of the original owner. That means, in effect that EMI regains perpetual control of all recordings all the way back to Edison.

The losers in the case aren't just Naxos, he points out. The losers are us, as Pogo might put it, the public. Now access to this rich cultural heritage is exclusively for those with money and only at the record company's whim. What happened to the public's interest in all this? Whose culture is it? Is there to be no public domain left at all? Is it going too far to opine that the record companies have become the enemies of culture?

The first article I wrote for Groklaw spoke about Grokster, P2P, the public's interest in it, and a Peruvian singer named Yma Sumac:

Shawn Fanning had an idea for a more efficient way to share music using a distributed model over the internet, P2P. His idea wasn't quite fully formed, because Napster had a centralized server, where everyone had to plug in to reach everyone else. But his idea was simply that it would be efficient if everyone who had a file others might like made it available on his computer and vice versa.

Because the internet is nothing except a voluntary agreement to connect to other computers, he realized that this meant you could share whatever is on your computer with anyone in the world who was also connected to the internet, without having to get a domain name, a DNS server, an internet address, etc.

Here is a description from an Australian school of law paper of how peer to peer was an improvement:

"Before peer to peer, if you wanted to serve files from your PC you needed a permanent IP address, domain name, registration with DNS servers and properly configured web server software on the PC. With peer to peer technology your computer storage, cycles and content are made available because the PC via modem becomes a node that operates outside the DNS system, having significant autonomy from central servers with the ability to be accessed by other users. It is file sharing on the internet that occurs outside of the traditional forms of file transfer- http and ftp."

In short, it's cheaper and easier. Instead of a funnel, with a media outlet distributing through its narrow end, everyone on the internet could just share whatever they had with anyone, even just one individual, who wanted it.

It caught on because it works so well, not just because some used it in ways eventually defined as illegal. Instead of a company collecting what it thinks it can sell to a large enough group of consumers to be able to make a profit, the internet makes niche distribution easy and realistic.

If I want to hear Yma Sumac singing some esoteric Peruvian folk song, in meat space I am going to have a hard time finding her. But on the internet, she is easily found. And reading her bio there, you can't help but notice how copyright was used to reduce how much of her music is available: she made a CD herself in 1988, the bio says, after the height of her career was past, of her own music, but included a "remix" of some old material of hers without asking permission of EMI/Capitol Records, which promptly pulled the CD from the shelves for copyright infringement. That CD is just lost. It's hard to see how such a use of copyright benefited anyone, even EMI, which could have released the CD, taking its cut, but never bothered to do so. Surely the artist was harmed and so was the public, at least the part of the public that likes to listen to singers with a 5-octave range.

The Court of Appeals was asked to decide some questions raised in Naxos, and did they ever. Here [PDF] is the Court of Appeals' handiwork. EMI just won the right to do to any artist what it did to Yma Sumac.

Brendan Scott, an Australian attorney, takes a look at the case and its implications for us, and, being as deeply in shock as the rest of us, looks at the decision as if he were a Martian who suddenly lands in New York's Court of Appeals. He tries very hard to figure out how such a peculiar decision might be arrived at, and asks, How do you guys ever innovate over there? A very good question.

The answer is, unless the Supreme Court provides some balance, we'll be doing it less and less.


Some Notes on Capitol Records, Inc. v Naxos of America Inc.
~ by Brendan Scott

Last week, in a 7-0 slapdown, the New York Court of Appeals handed down a decision on a certified question from the Second Circuit (i.e., the Second Circuit asked for guidance on a specific point of law) finding that common law copyright subsists (in New York) in sound recordings made prior to 1972, even if they were made outside the State -- Federal statute law preempts common law in respect of recordings made after that time. I am not an expert on U.S. law, so I won't presume to analyse the legal standing of this case against existing precedent. However, I will outline some of the history of the case, outline some "Martian Lands in New York" sort of questions to be considered as a result of it and set out some short notes on the impacts on open source.


In the 1930s the Gramophone Company Limited (now EMI Records Limited, the parent company of Capitol Records Inc (Capitol)) made sound recordings in England of a number of artists including Yehudi Menuhin, Edwin Fisher and Pablo Casals. On a number of occasions in the past, in response to repeated attempts to create it (or resurrect it, depending on your viewpoint), the UK legislature has passed legislation expressly wiping out any possibility of the existence, in the UK, of common law copyright. In fact, the very first "modern copyright Act" (the Statute of Anne) probably had this effect (in 1709). As such, the only copyright which exists in England is that granted by the legislature, and that was set at 50 years from recording. Therefore, by 1990 copyright in England in the recordings had expired.

In 1996 Capitol exclusively licensed the U.S. marketing rights to the recordings in question. Naxos of America Inc. (Naxos) acquired the original shellac records and remastered them, correcting some artefacts in the recordings, and began (in 1999) selling them (to critical acclaim) in the U.S.

Capitol, once it became aware of Naxos' actions, told Naxos to stop selling its remastered versions. We can assume that Naxos responded to Capitol consistently with the time honored tradition among lawyers, which usually takes the following form "Dear Sir, thank you for your letter dated [date], but received on [date] relating to [matter]. Your assertions are both groundless and preposterous. Bite me! Yours etc.," -- whence the court case.

As a result of the decision, common law copyright subsists in sound recordings made prior to 1972 and that copyright exists in perpetuity, subject to preemption by federal statute. At present, this means that it will expire in 2067. The date it was originally due to expire was 2047, however the the Sonny Bono Copyright Extension Act has extended it by another 20 years. By that time there will have been roughly 3 more such Acts passed. Given that Congress has already demonstrated its will in this regard if you are sufficiently foolishly naive to expect common law copyright will expire at that time, please contact me about some real estate transactions that may be of interest to you.

The parties to the suit, like a number of similar decisions which fundamentally alter the copyrights of everyone in the country, were both record companies. You can imagine what problems there might be for a court to craft a judgment which finely balances the interests of everyone who is potentially affected by the decision when the only view the court is presented with is a view of copyright seen through the eyes of two copyright vendors. It is unlikely that either of them will give too much attention to the views of the rest of society, simply because their experience doesn't afford them the information to do so. It is for this reason that courts will, on occasion, permit a third party to also express a view -- these interlopers are called amicus curiae -- friends of the court. Thankfully, that happened in this case, with the court also hearing from the Recording Industry Association of America who, no doubt, would have put forward a dispassionate and objective view of the history and role of copyright in the economy.

A Martian in New York at the Court of Appeals

As I said, I am not in a position to argue the rights and the wrongs of the decision by reference to U.S. legal precedent. I do, however, think I am in a position to make some pragmatic observations about the case from the view of the reasonable individual fresh off the space ship from Mars right in the middle of New York who just happens to choose the Court of Appeals as their first port of call in preference to the other tourist destinations on offer.

First, how on earth can the general populace have faith in decisions where their interests are not represented? It is arguable that, since copyright vests in everyone who creates a work, therefore the interest of copyright vendors is the interest of all copyright holders. Unfortunately, in practice unless you happen to own, or have ready access to, a municipal, state, country or worldwide distribution channel, copyright rights are of little, if any, value to you. Just ask the average author receiving less than the average wage from their creative work. This is not an asymmetry you find when dealing with property rights.

Second, Martians generally believe that effective and vigorous competition is a good thing. Why is the court endorsing an arrangement, the practical effect of which is the creation of a trade barrier preventing New York citizens from accessing the best price for a product? All of the original recordings in question are available for free (i.e., are not subject to copyright) in the UK -- their country of origin and their place of manufacture. Surely, if pencils were being given away in the UK, a decision preventing their importation and sale in New York, except through a single vendor who, by the way, because of their privileged position might choose to charge a hefty premium, would be roundly condemned.

Third, Capitol is a subsidiary of a UK company. I take it you haven't quite got the hang of protectionism just yet. You're supposed to protect domestic companies (d'oh!). You crazy guys. Not only will New Yorkers be paying more for their old music, they'll be exporting that extra dosh by way of transfer pricing arrangements to the jurisdiction where the music is available for free! I can almost hear EMI's Board guffawing over a Boli CG.

Fourth, exactly what is the scope of common law copyright in New York and how did it get here? What was the common use and practice of the first New Yorkers composing their great narratives in between eking out an existence and mastering the woodlands? Did they really truly have a practice of recognising rights similar to copyright as we know them today and were inherited upon the founding of the State, or has there been scope for judicial activism in the intervening period? In either case, what is the scope of the law today? Clearly it hasn't been litigated much or this case wouldn't have been brought. Will the courts simply happen to identify the rights under common law with those available under federal statute? What defenses (fair dealing?) are available for example?

Fifth, while you could argue that if common law copyright existed at and was incorporated into New York common law upon the founding of the colony/the creation of the State and you could also argue that it covered literary works, exactly how is it possible to incorporate sound recordings and other technologies into this "eternal" common law right when they didn't exist until centuries after the relevant time? Whether the common law is actually capable of changing is a question of some involved jurisprudence (on some interpretations courts simply "discover" the common law). However, if it is sufficiently extensible to cover sound recordings will courts actually take heed of the common custom and practice of citizens (only a tiny fraction of whom today have unauthorised mp3s, in the 1970s had unauthorised cassettes, and previously had unauthorised reel to reels) when determining the scope of these common law rights? Will they take heed of alt.binaries.* in determining the common custom I wonder?

Sixth, does the court's argument apply to literary works and, in particular, to computer programs? The arguments in the case appear to be heavily reliant on a line of decisions to the effect that, while first publication exhausts any possible common law property in written works, the same was not true of sound recordings (surprise, surprise, the key case in the line of precedent seems to be another one of those cases between two recording companies -- Capitol Records Inc. v Mercury Records Corp. 221 F2d 657. Capitol Records Inc. . . now where have I seen that name before?). Like sound recordings, computer programs didn't exist at the time of the relevant early copyright decisions. There would appear to be ample scope should the whim take an interventionist judiciary. Further, any wording in federal statutes relating to transitional provisions for literary works may not apply to them unless referenced with sufficiently specific detail in those transitional provisions.

Seventh, even if first publication with authority exhausts common law copyright in a literary work in New York State which would otherwise exist in perpetuity, exactly when did Shakespeare first authorise the publication of his works there? Sounds like maybe there's a massive class action claim waiting for Shakespeare's successors in title. . . .

Eighth, the lawyers for Capitol have said that "the result is that artists, their estates and others involved in recordings made before 1972 could collect royalties in the United States for their performances". Exactly who might be covered by that word "others" is a bit beyond me. Could he be referring to the record companies? Further, they have declined to indicate in what proportion the artists, their estates, and these unnamed "others" will share in those royalties. Would anyone like to hazard a guess?

Finally, how do you guys manage to innovate there? With so many overlapping rights, many of which seem to spring up out of nowhere from time to time, it sounds like a nightmare navigating through a maze of obligations. If I go ahead and restore a wonderful work that the copyright holder has abandoned, I can re-ignite the market for that work, only to be blindsided by the copyright holder once I've done the work in creating the market. Do you ever get the feeling that this regulation might, one day, although maybe not until the long distant future, give rise to oligopolies and consequent price gouging?

I guess the rest of us are simply glad that you are content to savage your own industries, and happy that you won't be able to export State common law.

What are the impacts on Open Source?

Well, the main thing is, if you're looking for some music to include in your computer programs, don't even think about mining the public domain of pre-1972 sound recordings. Apparently, that public domain does not exist and, indeed, won't exist until 2067. Unless, of course, you're in the UK (or another of those handful of jurisdictions around the world which don't recognise New York common law), in which case, go for your life! Remember though, that the suckers in New York won't be able to use your software.

This prohibition would probably include, for example, using a soundtrack from a copyright-expired movie, as the common law copyright may continue to subsist in the sound recording.

If similar arguments are available for computer programs, there may be some issues for code which has inherited an old pedigree. Will this lead to a new SCO case in 3 years' time? What of the AT&T/BSD case?

On the general issue of whether or not perpetual copyright would be a good thing or a bad thing for open source, I am by no means certain. It may turn out that copyright is the most effective means of securing a free software market, in which case, the longer the better. It seems to have done a reasonable job to date. Only time will tell.

Note: There are a couple of what-ifs in there (could it apply to computer programs, or to the sound tracks of film recordings?) in respect of which I am engaging in idle speculation and for which there may be an obvious answer on the Statute or case law books. If you have the expertise, please feel free to complete the picture.

Brendan Scott,, April 2005 Brendan is a lawyer, based in Sydney, Australia. Brendan runs a specialist practice dealing with ICT and open source related law.

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