Capitol Records, Inc. v. Naxos of America

• Decision Date: 05 April 2005
• Citation: 4 N.Y.3d 540,830 N.E.2d 250
• Parties: CAPITOL RECORDS, INC., Appellant, v. NAXOS OF AMERICA, INC., Respondent.
• Court: New York Court of Appeals Court of Appeals

830 N.E.2d 250

4 N.Y.3d 540

CAPITOL RECORDS, INC., Appellant, v. NAXOS OF AMERICA, INC., Respondent.

Court of Appeals of New York.

April 5, 2005.

COPYRIGHT MATERIAL OMITTED

Mayer, Brown, Rowe & Maw LLP, New York City (Philip Allen Lacovara and Todd Lundell of counsel), and Kaplan & Levenson LLP (Paul R. Levenson of counsel) for appellant.

Schiff Hardin, LLP, New York City (Maxim H. Waldbaum, Lori D. Greendorfer and John Becker of counsel), for respondent.

Loeb & Loeb LLP, New York City (Barry I. Slotnick and Eleanor M. Lackman of counsel), and Stanley Pierre-Louis, Washington, D.C., for Recording Industry Association of America, amicus curiae.

OPINION OF THE COURT

GRAFFEO, J.

Sound recordings produced after February 15, 1972 can be protected from infringement under federal copyright law but Congress did not extend statutory protection to recordings created before that date. In a certified question, the United States Court of Appeals for the Second Circuit asks us whether there is common-law copyright protection in New York for sound recordings made prior to 1972.

This case involves a dispute between two music recording companies. Capitol Records, Inc. owns the rights to several classical recordings made in the 1930s. Naxos of America, Inc. copied those recordings from the original shellac record format and, using technological advances, remastered the recordings for sale to the public as compact discs. Naxos did not request permission from Capitol to use the recordings. The issue here is whether Capitol may maintain a copyright infringement action against Naxos premised on the common law of New York. Because the answer to this question will have significant ramifications for the music recording industry, as well as these litigants, we were offered and accepted certification.

I. Factual and Procedural Background

During the 1930s, the Gramophone Company Limited, currently known as EMI Records Limited — the parent company of Capitol — recorded classical musical performances of three world-renowned artists: Yehudi Menuhin's July 1932 performance of Edward Elgar's "Violin Concerto in B minor, Opus 61"; Pablo Casals' performances of J.S. Bach's cello suites, recorded between November 1936 and June 1939; and Edwin Fischer's performances of Bach's "The Well Tempered Clavier, Book I," recorded between April 1933 and August 1934, and of Bach's "The Well Tempered Clavier, Book II," recorded between February 1935 and June 1936. The artists' contracts specified that Gramophone would have absolute, worldwide rights to the performances, including the right to reproduce and sell copies of the performances to the public.

Gramophone recorded all of the performances in England. At that time, the United Kingdom provided statutory copyright protection to sound recordings for 50 years (see UK Copyright Act of 1911, 1 & 2 Geo. 5, ch. 46, § 19). Thus, all of the Gramophone recordings at issue had entered the public domain in the United Kingdom by 1990.

In 1996, subsidiaries of EMI entered into a series of agreements whereby Capitol was granted an exclusive license to exploit the Gramophone recordings in the United States. Using modern electronic methods, Capitol remastered the original recordings to improve their audio quality and transferred them to digital format for sale to the public.

Naxos also wished to preserve these important historical recordings. It located copies of the original 1930s shellac recordings and undertook its own multistep restoration process in the United Kingdom. The remastered compact disc versions produced by Naxos were distributed for sale in the United States beginning in 1999, competing with the compact disc products marketed by Capitol. Naxos never obtained a license from Capitol and rebuffed Capitol's demand to cease and desist the sale of the Naxos compact discs.

Capitol commenced an action against Naxos in the United States District Court for the Southern District of New York in 2002. The complaint set forth claims of common-law copyright infringement, unfair competition, misappropriation and unjust enrichment, all of which were premised on the law of the State of New York, the situs of the alleged infringement. Naxos moved to dismiss for failure to state a claim, arguing that the recordings had entered the public domain in the United Kingdom and, hence, the United States as well. Capitol moved for, among other relief, partial summary judgment on liability.

The District Court granted summary judgment to Naxos. The court characterized Capitol's cause of action as a "hybrid copyright, unfair competition" claim and concluded that Capitol did not have intellectual property rights in the original recordings because its copyrights had expired in the United Kingdom. (262 F.Supp.2d 204, 210 [2003].) With respect to the unfair competition cause of action, the District Court opined that the Naxos recordings were not a "duplicate" or "imitation" of the original recordings but "an entirely new and commercially viable product" because the original shellac records were obsolete and Naxos had removed "numerous sound imperfections" from the records. (Id. at 213, 214.) Finding that public policy favored the preservation and redissemination of classical performances, the court held that Capitol failed to show that Naxos had engaged in the type of bad faith required to sustain an unfair competition cause of action. In a second written decision, the court adhered to its ruling.¹

On appeal, the Second Circuit determined that this case raises several unsettled issues of New York law. After noting that, under federal law, "it is entirely up to New York to determine the scope of its common law copyright with respect to pre-1972 sound recordings," the Second Circuit certified the following question to this Court: "In view of the District Court's assessment of the undisputed facts, but without regard to the issue of abandonment, is Naxos entitled to defeat Capitol's claim for infringement of common law copyrights in the original recordings?" (372 F.3d 471, 478, 484 [2004].) We are also asked to answer three questions:

"(1) `Does the expiration of the term of a copyright in the country of origin terminate a common law copyright in New York?' (2) `Does a cause of action for common law copyright infringement include some or all of the elements of unfair competition?' (3) `Is a claim of common law copyright infringement defeated by a defendant's showing that the plaintiff's work has slight if any current market and that the defendant's work, although using components of the plaintiff's work, is fairly to be regarded as a "new product"?'" (Id. at 484-485.)

II. English Copyright Law

Because of the close connection between the evolution of copyright protection in England and the American adaptation of copyrights, it is helpful to examine the historical roots of property rights in tangible intellectual products (see generally Eldred v. Ashcroft, 537 U.S. 186, 200, 123 S.Ct. 769, 154 L.Ed.2d 683 [2003] [when examining copyright law, "`a page of history is worth a volume of logic'"], quoting New York Trust Co. v. Eisner, 256 U.S. 345, 349, 41 S.Ct. 506, 65 L.Ed. 963 [1921] [Holmes, J.]).

With the introduction of the printing press in England in the 15th century, a commercial interest in written works was born. It was, however, not authors but printers and publishers who initially sought to control the right to publish literary works (see Patterson, Copyright in Historical Perspective, at 6, 21). The concept of an exclusive right to reproduce works sprang from the commercial objectives of stationers or printers who wished to create a monopoly over the printing trade (see id. at 28-64). At the same time, the Crown had an interest in maintaining censorship authority over the press. Thus, the granting of an exclusive right to reproduce printed materials served the government's desire to control the flow and content of information, and supported the economic viability of the printers' trade guild (see id. at 223). This symbiotic relationship gave rise to early English copyright laws, such as those issued by the Star Chamber in its Decrees of 1586 and 1637, which reflected trade and guild regulations that assisted in preserving government censorship (see id. at 6, 9-11, 121, 125).

After the abolition of the Star Chamber in 1641 and the civil war between the Crown and Parliament, English law began to recognize an author's natural property right to control the dissemination of a literary creation (see id. at 160-162; see also 2 Blackstone, Commentaries on the Laws of England, at 405-406 [1769]; Millar v. Taylor, 98 Eng. Rep. 201, 257, 4 Burr 2303, 2406-2407 [KB 1769] [Mansfield, L.C.J.] [discussing the "uniform()" decisions of the Chancery Court]; 98 Eng. Rep. at 212, 4 Burr at 2323 [Willes, J.] [same]). Parliament's passage of the Statute of Anne in 1709 (8 Anne ch. 19) signaled an attempt to end government censorship and trade guild monopoly. It broadened the concept of copyrights to include the ability of an author to decide whether a literary work would be published and disseminated to the public (referred to as the "right of first publication") and, if distributed, how the work would be reproduced in the future. The Statute of Anne vested an author or publisher of a literary work with statutory copyright protection for specified time periods — new works received 14 years of copyright protection (with the possibility of a 14-year renewal) and previously published works were entitled to 21 years of protection (see Patterson, Copyright in Historical Perspective, at 143-150).

In the latter half of the 18th century, a recognition emerged that the creation of a literary work should vest rights in its author similar to the ownership rights in perpetuity associated with other forms of tangible property. The common law embraced this concept of ownership for literary works (see 2 Blackstone, Commentaries on the Law of...