Columbia Broadcasting System, Inc. v. Custom Recording Co.

• Decision Date: 29 May 1972
• Docket Number: No. 19430,19430
• Citation: 189 S.E.2d 305,258 S.C. 465
• Parties: , 174 U.S.P.Q. 309 COLUMBIA BROADCASTING SYSTEM, INC., Appellant, v. CUSTOM RECORDING COMPANY, Inc., et al., Respondents.
• Court: South Carolina Supreme Court

Page 305

189 S.E.2d 305

258 S.C. 465, 174 U.S.P.Q. 309

COLUMBIA BROADCASTING SYSTEM, INC., Appellant, v. CUSTOM RECORDING COMPANY, Inc., et al., Respondents.

No. 19430.

Supreme Court of South Carolina.

May 29, 1972.

Lybrand, Rich & Cain, and James E. Austin, Aiken, and McKay, McKay, Black, Sherrill, Walker & Wilkins, Columbia, for appellant.

Toole & Toole, Aiken, Bryant, Fanning & Yarborough, Orangeburg, Levine, Goodman & Murchison, and Richards & Shefte, Charlotte, N.C., for respondents.

LITTLEJOHN, Justice:

Columbia Broadcasting System, Inc., ('CBS') sought to enjoin defendants' 'pirating' or appropriating performances embodied in phonograph recordings manufactured by its Columbia Records Division. In the recording industry this practice is known as ('disklegging'). The lower court declined to grant a temporary injunction and CBS has appealed.

CBS, in its complaint filed in the Court of Common Pleas for Aiken County in May, 1971, alleged that: CBS has for many years been engaged in the manufacture and sale of phonographic recordings in the form of disks and magnetic tapes. In the course of its business CBS has entered into contracts with various well-known performing artists and groups who have granted to CBS the exclusive right to manufacture, reproduce, and sell phonographic recordings embodying their performances. Under these contracts CBS has also been granted the sole and exclusive ownership of such performances so rendered and embodied in phonographic recordings, and the sole and exclusive right to use the name and likeness of these artists in connection with the sale and commercialization of such recordings.

Contracts have also been entered into by CBS with the American Federation of Television and Radio Artists and the American Federation of Musicians. Upon the sale of its recordings, CBS becomes liable to pay fees to designated trustees for the benefit of performing artists and musicians, and also becomes liable to pay specified royalties to the artists whose performances are embodied therein.

CBS has purchased or otherwise acquired costly, specialized machinery and equipment and has employed and compensated highly skilled personnel for the purpose of recording such performances and reproducing such recordings. These recordings are manufactured to conform to the highest musical and technical standards, utilizing equipment and procedures which have been developed and perfected at great expense. The recordings, and the names of the performers themselves, are advertised and promoted at great expense to CBS. Through such expenditures and other promotional activities, CBS has built substantial public acceptance of these performances and recordings, and has established much good will.

The above allegations are neither admitted nor denied by defendants in their answer.

CBS's complaint contains further allegations which are specifically denied by defendants: It is alleged that CBS-manufactured recordings are acquired by defendants and are then re-recorded onto magnetic tapes which defendants, using the names of the original artists, then sell in competition with CBS. According to CBS, the quality of defendant's reproductions is inferior to CBS's original recordings. By so reproducing CBS's recordings, CBS alleges, defendants are able to avoid a great many of the legitimate expenses which CBS incurs. Such activity, CBS says, amounts to unfair competition, unlawful appropriation, unjust enrichment, wrongful deception of the public and unlawful trading on CBS's good will and public acceptance. CBS finally asserts that the inferior quality of defendants' tapes directly and adversely reflects upon CBS's products, that CBS has suffered extensive damages through lost sales and profits, and that CBS will continue to suffer irreparable injuries unless and until defendants' wrongful conduct is enjoined and restrained. A temporary injunction, a permanent injunction, an accounting, damages, etc., are asked in the prayer for relief.

By order dated May 17, 1971, defendants were commanded to show cause why a temporary injunction Pendente lite should not be issued. By way of answer and response to this order, defendant Custom Recording Company, Inc. states that it purchases phonograph records on the open market, copies or duplicates selected performances therefrom onto magnetic tape, and thereby produces reproductions of the highest fidelity and quality. Such tape is then wound and spliced onto cartridges which are packaged in defendants' distinctive trade dress. Each such tape cartridge contains from eleven to sixteen separate musical performances, usually performed by several different artists or groups of artists.

Defendants' answer set up several defenses. First, they allege that all common law rights attaching to phonograph records or electrical transcriptions have been abolished by statute ¹ in South Carolina and that plaintiff is thereby barred from asserting any common law rights to collect royalties or further restrict defendants' commercial use of plaintiff's recordings.

As an additional defense the defendants allege that when phonograph records are sold by CBS on the open market, the records and the musical performances embodied thereon are thereby consigned to the public domain. CBS's assertion of the right to prevent others from copying such records, defendants allege, improperly interferes with the federal monopoly scheme, Accordingly, they say, CBS is barred from asserting such right.

As a further defense it is alleged that each CBS-manufactured tape or disk embodies a large number of different musical compositions. In selecting the performance to be reproduced onto their tapes and disks CBS deliberately combines musical performances which are known to be popular with performances of unknown popularity and performances known to be unpopular. Thus, defendants say, sale of the popular performances is conditioned upon purchase of the other performances. They contend that this activity, when combined with an asserted exclusive right to control the manufacture and sale of such recordings, is illegal, inequitable, in restraint of trade, and repugnant to public policy.

Defendants prayed for dismissal of the action.

Both plaintiff and defendants submitted affidavits in support of their respective positions.

Plaintiff's request for a temporary injunction was heard on May 29, 1971, by the Honorable J. B. Ness. By order dated September 25, 1971, Judge Ness refused to grant the temporary injunction. Plaintiff has appealed.

The court, in its descretion, County Council of Charleston v. Felkel, 244 S.C. 480, 137 S.E.2d 577 (1964), may grant a temporary injunction 'when it shall appear: (1) By the complaint, that the plaintiff is entitled to the relief demanded, and such relief, or any part thereof, consists in restraining the commission or continuance of some act the commission or continuance of which, during the litigation would produce injury to the plaintiff.' Code of Laws of South Carolina (1962) § 10--2055.

The two conditions essential to the granting of a temporary injunction were reiterated by this Court in Transcontinental Gas Pipe Line Corp. v. Porter, 252 S.C. 478, 167 S.E.2d 313 (1969):

'First, the complaint must allege facts which appear to be sufficient to constitute a cause of action for injunction; and, second, on the entire showing from both sides it must appear, in view of all the circumstances, that the injunction is reasonably necessary to protect the legal rights of the plaintiff pending the litigation.' (Quoting Childs v. City of Columbia, 87 S.C. 566, 70 S.E. 296 (1911)).

It was also pointed out in that case that:

'When a prima facie showing has been made entitling plaintiff to injunctive relief, a temporary injunction will be granted without regard to the ultimate termination of the case on the merits.' (Citing D. W. Alderman & Sons Co. v. Wilson, 69 S.C. 156, 48 S.E. 85 (1904)).

Unquestionably, the lower court had before it a prima facie showing of the facts upon which plaintiff based its plea for relief. The complaint essentially alleged that defendants had appropriated performances embodied in plaintiff's recordings. The defendants' answer essentially admits this. The question, then, which this Court must decide, is: Did the actions of the defendants amount to such a breach of plaintiff's rights as to entitle plaintiff to injunctive relief? If so, then the lower court erred for 'where the case made out by the complainant is perfectly clear, and he has complied with all the requirements of the law for the issuance of an injunction, he is entitled to the injunction as a matter of right.' 43 C.J.S. Injunctions § 14, citing Metcalf v. Huntley-Richardson Lumber Co., 170 S.C. 226, 170 S.E. 162, 168 (1933).

Judge Ness' order, and the parties' briefs, contain a lengthy discussion of cases involving unlawful appropriation and exploitation.

A consideration of this matter must begin with International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918), 'one of the most important cases, if not the most, in the law of unfair competition.' 2 Callman, Unfair Competition, Trademarks, and Monopolies § 60.1 (3d ed. 1968) (hereinafter cited as 'Callman'). In that case the parties were competitors in the gathering and distribution of news. Suit was brought to restrain INS from copying news from bulletions and from early editions of newspapers serviced by AP, and from otherwise pirating AP's news. The Court based its decision upon 'the question of unfair competition in business' rather than on 'the question of property in news matter at common law, or the application of the copyright act.' In affirming the district court's grant of a preliminary injunction, the Court said, at pages 239--240, 39 S.Ct. at page 72:

' . . . (D)efendant, by its very act, admits that it is taking material that has been acquired by complainant as the result of organization...