Chambers v. Time Warner, Inc.

Decision Date21 February 2002
Docket NumberDocket No. 01-7010.
PartiesLester CHAMBERS, d/b/a The Chambers Brothers, Carl Gardner, d/b/a The Coasters, Bill Pinkney, d/b/a The Original Drifters, and Tony Silvester, d/b/a The Main Ingredient, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. TIME WARNER, INC., in its own right and as successor in interest to Warner Bros. Records, Atlantic Records, Elektra Records, and associated labels, Sony Corporation of America, in its own right and as successor in interest to Columbia Records and associated labels, BMG Entertainment, Inc., in its own right and as successor in interest to RCA Records, Arista Records, and associated labels, Universal Music Group, Inc., in its own right and as successor in interest to MCA Records, Polydor Records, and associated labels, and MP3.Com, Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Second Circuit

Mark C. Rifkin, Feldman & Rifkin, Jenkintown, PA (Frederick Isquith, Wolf Haldenstein Adler Freeman & Herz, New York, NY, Lawrence E. Feldman, Feldman & Rifkin, Jenkintown, PA, on the brief), for Plaintiffs-Appellants.

Katherine B. Forrest, Cravath, Swaine & Moore, New York, NY (Jay Cohen, Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY, Charles B. Ortner, Proskauer Rose, New York, NY, Andrew H. Bart, Susan Arden, Pryor, Cashman, Sherman & Flynn, New York, NY, and Russell J. Frackman, Jeffrey D. Goldman, Mitchell, Silberberg & Knupp, Los Angeles, CA, on the brief), for Defendants-Appellees Time Warner, Inc., Sony Corporation of America, BMG Entertainment, Inc., and Universal Music Group, Inc.

Jeffrey A. Conciatori, Orrick, Herrington & Sutcliffe, New York, NY (Michael B. Carlinksy, Lisa T. Simpson, and Margret M. Caruso, on the brief), for Defendant-Appellee MP3.Com.

Before: CARDAMONE, POOLER, and B.D. PARKER, Jr., Circuit Judges.

B.D. PARKER, JR., Circuit Judge.

Plaintiffs Lester Chambers, Carl Gardner, Bill Pinkney, and Tony Silvester, who are recording artists, appeal from the December 8, 2000 judgment of the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) dismissing their Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted. The District Court found that plaintiffs' recording contracts with defendants Time Warner, Inc., Sony Corporation of America, BMG Entertainment, Inc., and Universal Music Group, Inc. (collectively, the "Record Companies") effectively transferred their rights in digital versions of their recordings to the Record Companies and thus barred their federal copyright infringement claims. The court also determined that defendant, Inc.'s use of plaintiffs' names on its Internet website was a fair use, which barred plaintiffs' Lanham Act claim. The court dismissed related state law claims without prejudice. Because we find that the District Court, in ruling on defendants' motions to dismiss, improperly considered materials outside the pleadings on the copyright claims and failed to sufficiently consider the Lanham Act claim, we vacate and remand.


In this putative class action, plaintiffs are recording artists from four musical groups commonly classified in the rhythm and blues genre: Lester Chambers of The Chambers Brothers, Carl Gardner of The Coasters, Bill Pinkney of The Original Drifters, and Tony Silvester of The Main Ingredient. They recorded performances of musical works under contracts with predecessors of the Record Companies from the 1950s through the mid-1990s. Pursuant to these contracts, plaintiffs assigned ownership rights, including copyrights, in their sound recordings to the Record Companies in exchange for the right to royalties from the sale of the recordings. Each Record Company purportedly sells copies of each plaintiff's recordings via licenses or cross-licenses.

Plaintiffs allege that the advent of the "digital revolution" brought about profound changes in the way music is recorded, distributed, and sold. When plaintiffs' original analog master recordings, which served as the basis for the production of vinyl records and cassette tapes, were remastered digitally and placed on compact discs ("CDs") by the Record Companies, they became susceptible to rapid reproduction on computer as digital audio files, with no degradation in sound quality. Once the files were placed on the Internet, they could be downloaded to a computer or simply broadcast over the Internet in a process called "streaming." As a result, plaintiffs allege, unauthorized "clones" of their digital recordings are competing with sales of tangible recordings in the vinyl, cassette, and CD formats, thereby reducing their royalty stream under their contracts with the Record Companies.

Since mid-January 2000, defendant, Inc. allegedly has converted plaintiffs' digital recordings into a compressed digital format known as "MP3 format," and has offered a service on its Internet website that enables consumers to download or stream intangible versions of the recordings as MP3 format files. Further, to promote its services and facilitate the sale of plaintiffs' recordings, purportedly uses plaintiffs' names and likenesses without their consent or authorization. In what plaintiffs refer to as the "new music business model" that epitomizes, revenues are generated through subscriptions, advertisements, and ancillary services such as cross-promotions and stock offerings rather than by record sales.1 Pl. Reply Br. at 19.

The Amended Complaint sets forth numerous federal and state law claims. Plaintiffs assert a federal copyright claim in which they request a "determination that [their] contracts [with the Record Companies] did not grant to the [Record Companies] or anyone else the right to sell or authorize others to sell digitized versions of their pre 1996 artistic performances on the Internet, or to `digitally download' or `stream' work authored by plaintiffs, or to utilize their names and likeness [sic] in connection with such activities...."2 Am. Compl. ¶ 41. In the alternative, plaintiffs claim beneficial ownership rights in their recordings under New York state law and section 501(b) of the Copyright Act of 1976, 17 U.S.C. § 501(b). They seek royalties and licensing fees in connection with the digital exploitation of their recordings, and claim that New York law entitles them to an equitable lien on the proceeds of this exploitation. Plaintiffs also assert a claim under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), against arising out of its use of plaintiffs' names and likenesses on its website. Further, plaintiffs assert state law claims for (i) unfair competition and violation of the New York Civil Rights Law arising from the use of their names and likenesses, (ii) negligence and gross negligence for the risk of music piracy arising from the Record Companies' release of plaintiffs' recordings on CD beginning in the 1980s, and (iii) breach of contractual and fiduciary duties arising from the failure of the Record Companies to ensure that plaintiffs received royalties for the exploitation of digital versions of their recordings.

After limited pre-answer discovery, plaintiffs moved for class certification and defendants moved to dismiss under Rule 12(b)(6). The Record Companies' moving papers contained several affidavits. The affidavit of Katherine B. Forrest attached thirteen contracts between plaintiffs and the Record Companies signed between 1955 and 1989. An additional contract, between plaintiff Bill Pinkney and Atlantic Records dated June 1, 1992, was attached to the affidavit of Silda Palerm.

On December 4, 2000, the District Court granted defendants' motions. Chambers v. Time Warner, Inc., 123 F.Supp.2d 198 (S.D.N.Y.2000). In its opinion, the District Court considered the contracts attached as exhibits to the Forrest and Palerm Affidavits. The court also considered several unsigned drafts of a collective bargaining agreement between record producers and the American Federation of Television and Radio Artists ("AFTRA"), to which plaintiffs belong. The agreement is called the AFTRA Code of Fair Practice for Phonograph Recordings, and the drafts (the "AFTRA Codes") initially were submitted in connection with plaintiffs' class certification motion. Id. at 201-02. The first AFTRA Code was enacted in the mid 1950s, and there have been several amendments, most recently in 1997. See Moore v. Am. Fed'n of Television and Radio Artists, 216 F.3d 1236, 1239 (11th Cir.2000), cert. denied, 533 U.S. 950, 121 S.Ct. 2592, 150 L.Ed.2d 751 (2001). The Codes govern the "minimum wages and working conditions of phonograph recording artists." Each "contain[s] the minimum terms and conditions for the engagement of [artists] for the purpose of making phonograph recordings." These terms relate to, inter alia, union membership, compensation, recording sessions, and certain health and retirement funds to which producers are obligated to contribute. They also prescribe common language to be incorporated into contracts between artists and record producers, binding them to "all the terms and provisions of the AFTRA Code" and resolving "any inconsistency between [the contracts] and [the Code]" in favor of the Code, unless the contractual terms are more favorable to the artists.

The District Court concluded that, because the recording contracts in question broadly conveyed to the Record Companies the right to manufacture and distribute recordings "by any method whatsoever, whether known at the time or `hereafter to become known,'" plaintiffs' interests in digital versions of their recordings, including copyrights, belonged to the Record Companies. Chambers, 123 F.Supp.2d at 200 (quoting contracts). The court determined that this conclusion was not altered by the AFTRA Codes because they did not narrow...

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