Shapiro, Bernstein & Co. v. HL Green Company

• Decision Date: 15 April 1963
• Docket Number: No. 294,Docket 27979.,294
• Citation: 316 F.2d 304
• Parties: SHAPIRO, BERNSTEIN & CO., Inc., et al., Plaintiffs-Appellants, v. H. L. GREEN COMPANY, Inc., Defendant and Third Party Plaintiff-Appellee, JALEN AMUSEMENT COMPANY, Inc., Defendant and Third Party Defendant.
• Court: U.S. Court of Appeals — Second Circuit

316 F.2d 304 (1963)

SHAPIRO, BERNSTEIN & CO., Inc., et al., Plaintiffs-Appellants, v. H. L. GREEN COMPANY, Inc., Defendant and Third Party Plaintiff-Appellee JALEN AMUSEMENT COMPANY, Inc., Defendant and Third Party Defendant.

No. 294, Docket 27979.

United States Court of Appeals Second Circuit.

Argued March 27, 1963.

Decided April 15, 1963.

Julien T. Abeles, New York City, for plaintiffs-appellants.

Sidney Hut, of Danson & Hut, New York City for defendant and third party plaintiff-appellee.

Before WATERMAN and KAUFMAN, Circuit Judges, and WEINFELD, District Judge.

KAUFMAN, Circuit Judge.

This action for copyright infringement presents us with a picture all too familiar in copyright litigation: a legal problem vexing in its difficulty, a dearth of squarely applicable precedents, a business setting so common that the dearth of precedents seems inexplicable, and an almost complete absence of guidance from the terms of the Copyright Act, 17 U.S.C. § 1 et seq. Compare Platt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847 (2d Cir. March 21, 1963); Shapiro, Bernstein & Co. v. Goody, 248 F.2d 260, 262, 266 (2d Cir. 1957), cert. denied, 355 U.S. 952, 78 S.Ct. 536, 2 L.Ed.2d 529 (1958). The plaintiffs in the court below, appellants here, are the copyright proprietors of several musical compositions, recordings of which have met with considerable popularity, especially amongst the younger set. The defendant Jalen Amusement Company, Inc. was charged in the complaint with having infringed the copyrights on these songs by manufacturing records, close copies of the "hit-type" authorized records of major record manufacturers in violation of 17 U.S.C. § 101 (e): "in the absence of a license agreement" with the plaintiffs and without having served upon them a notice of intention "to use a copyrighted musical composition upon the parts of instruments serving to reproduce mechanically the musical work."

Jalen operated the phonograph record department as concessionaire in twenty-three stores of defendant H. L. Green Co., Inc., pursuant to written licenses from the Green Company. The complaint alleged that Green was liable for copyright infringement because it "sold, or contributed to and participated actively in the sale of" the so-called "bootleg" records manufactured by Jalen and sold by Jalen in the Green stores.¹

The District Judge, after trial, found Jalen liable as manufacturer of the "bootleg" records, and imposed a liability for the statutory royalty of two cents for each record which reproduced one of the plaintiffs' copyrighted compositions, and a further sum of six cents per record as damages. He concluded, however, that Green had not sold any of the phonograph records and was not liable for any sales made by Jalen; he accordingly dismissed the complaint as to Green. Jalen takes no appeal, but plaintiffs come before us to challenge the dismissal of the claims asserted against Green. The validity of those claims depends upon a detailed examination of the relationship between Green and the conceded infringer Jalen.

At the time of suit, Jalen had been operating under license from Green the phonograph record department in twenty-three of its stores, in some for as long as thirteen years. The licensing agreements provided that Jalen and its employees were to "abide by, observe and obey all rules and regulations promulgated from time to time by H. L. Green Company, Inc. * * *" Green, in its "unreviewable discretion", had the authority to discharge any employee believed to be conducting himself improperly. Jalen, in turn, agreed to save Green harmless from any claims arising in connection with the conduct of the phonograph record concession. Significantly, the licenses provided that Green was to receive a percentage — in some cases 10%, in others 12% — of Jalen's gross receipts from the sale of records, as its full compensation as licensor.

In the actual day-to-day functioning of the record department, Jalen ordered and purchased all records, was billed for them, and paid for them. All sales were made by Jalen employees, who, as the District Court found, were under the effective control and supervision of Jalen. All of the daily proceeds from record sales went into Green's cash registers and were removed therefrom by the cashier of the store. At regular accounting periods, Green deducted its 10% or 12% commission and deducted the salaries of the Jalen employees, which salaries were handed over by the Green cashier to one of Jalen's employees to be distributed to the others. Social security and withholding taxes were withheld from the salaries of the employees by Green, and the withholdings then turned over to Jalen. Only then was the balance of the gross receipts of the record department given to Jalen. Customers purchasing records were given a receipt on a printed form marked "H. L. Green Company, Inc."; Jalen's name was wholly absent from the premises. The District Judge found that Green did not actively participate in the sale of the records and that it had no knowledge of the unauthorized manufacture of the records.

When a District Court's determination of infringement hinges upon such purely factual questions as whether the defendant had access to the plaintiff's copyrighted materials and whether the physical acts of copying or selling actually occurred, the scope of review on appeal is limited to determining if the District Court's conclusions are clearly erroneous. Rosen v. Loew's, Inc., 162 F.2d 785 (2d Cir. 1947); Arnstein v. Porter, 154 F.2d 464, 469 (2d Cir. 1946). But where, as here, the facts are undisputed, and the issue of infringement depends merely upon a legal conclusion to be drawn from a consideration of the parties' relationship, we feel that an appellate court's power of review need not be so constrained. On the facts before us, therefore, we hold that appellee Green is liable for the sale of the infringing "bootleg" records, and we therefore reverse the judgment dismissing the complaint and remand for a determination of damages.

Section 101(e) of the Copyright Act makes unlawful the "unauthorized manufacture, use, or sale" of phonograph records. Because of the open-ended terminology of the section, and the related section 1(e), courts have had to trace, case by case, a pattern of business relationships which would render one person liable for the infringing conduct of another. It is quite clear, for example, that the normal agency rule of respondeat superior applies to copyright infringement by a servant within the scope of his employment. See, e. g., M. Witmark & Sons v. Calloway, 22 F.2d 412, 414 (E.D.Tenn.1927). Realistically, the courts have not drawn a rigid line between the strict cases of agency, and those of independent contract, license, and lease. See Study No. 25, Latman & Tager, "Liability of Innocent Infringers of Copyrights", prepared for the Sub-committee on Patents, Trademarks, and Copyrights of the Senate Comm. on the Judiciary, 86th Cong., 2d Sess. 146. Many of the elements which have given rise to the doctrine of respondeat superior, see Seavey, Studies in Agency, 145-53 (1949), may also be evident in factual settings other than that of a technical employer-employee relationship. When the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials — even in the absence of actual knowledge that the copyright monopoly is being impaired, see De Acosta v. Brown, 146 F.2d 408 (2d Cir. 1944), cert. denied, Hearst Magazines v. De Acosta 325 U.S. 862, 65 S.Ct. 1197, 89 L.Ed. 1983 (1945) — the purposes of copyright law may be best effectuated by the imposition of liability upon the beneficiary of that exploitation.

The two lines of precedent most nearly relevant to the case before us are those which deal, on the one hand, with the landlord leasing his property at a fixed rental to a tenant who engages in copyright-infringing conduct on the leased premises and, on the other hand, the proprietor or manager of a dance hall or music hall leasing his premises to or hiring a dance band, which brings in customers and profits to the proprietor by performing copyrighted music but without complying with the terms of the Copyright Act. If the landlord lets his premises without knowledge of the impending infringement by his tenant, exercises no supervision over him, charges a fixed rental and receives no other benefit from the infringement, and contributes in no way to it, it has been held that the landlord is not liable for his tenant's wrongdoing. See Deutsch v. Arnold, 98 F.2d 686 (2d Cir. 1938); cf. Fromont v. Aeolian Co., 254 F. 592 (S.D.N.Y. 1918). But, the cases are legion which hold the dance hall proprietor liable for the infringement of copyright resulting from the performance of a musical composition by a band or orchestra whose activities provide the proprietor with a source of customers and enhanced income. He is liable whether the bandleader is considered, as a technical matter, an employee or an independent contractor, and whether or not the proprietor has knowledge of the compositions to be played or any control over their selection. See Buck v. Jewell-LaSalle Realty Co., 283 U.S. 191, 198-199, 51 S.Ct. 410, 75 L.Ed. 971 (1931); Dreamland Ball Room, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th Cir. 1929); M. Witmark & Sons v. Tremont Social & Athletic Club, 188 F.Supp. 787 (D.Mass.1960); Remick Music Corp. v. Interstate Hotel Co., 58 F.Supp. 523 (D.Neb.1944), aff'd, 157 F.2d 744 (8th Cir. 1946), cert. denied, 329 U.S. 809, 67 S.Ct. 622, 91 L.Ed. 691 (1947); Buck v. Pettijohn, 34 F. Supp. 968 (E.D.Tenn.1940); Buck v. Crescent Gardens Operating Co., 28 F. Supp. 576 (D.Mass.1939); Buck v. Russo, 25 F.Supp. 317 (D.Mass.1938); Irving Berlin, Inc. v. Daigle, 26 F.2d 149 (E.D.La.1928), rev'd and remanded on other grounds, 31 F.2d 832 (5th Cir. 1929); M. Witmark & Sons v. Pastime Amusement Co., ...