Mercury Record Productions, Inc. v. Economic Consultants, Inc., E-C

• Decision Date: 17 June 1974
• Docket Number: No. 606,E-C,606
• Citation: 218 N.W.2d 705,64 Wis.2d 163
• Parties: , 183 U.S.P.Q. 358 MERCURY RECORD PRODUCTIONS, INC., a Delaware corp., et al., Appellants, v. ECONOMIC CONSULTANTS, INC., d/b/aTape Service, et al., Respondents.
• Court: Wisconsin Supreme Court

Page 705

218 N.W.2d 705

64 Wis.2d 163, 183 U.S.P.Q. 358

MERCURY RECORD PRODUCTIONS, INC., a Delaware corp., et al., Appellants, v. ECONOMIC CONSULTANTS, INC., d/b/a E-C Tape Service, et al Respondents.

No. 606.

Supreme Court of Wisconsin.

June 17, 1974.

Quarles & Brady, Milwaukee, for appellants; Ronald L. Piette, Milwaukee, Howard S. Smith, Mitchell, Silberberg & Knupp, Los Angeles, Cal., of counsel.

Charne, Glassner, Tehan, Clancy & Taitelman, Milwaukee, for respondents.

HEFFERNAN, Justice.

Cause of action for unfair competition

In their complaint and amended complaint, plaintiffs base their action on common-law copyright, unfair competition, and unjust enrichment. On appeal, however, plaintiffs rely exclusively on unfair competition, with the exception of one paragraph in their original brief which discusses common-law copyright. We consider the other grounds abandoned.

Prior to International News Service v. Associated Press (1918), 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (hereinafter referred to as I.N.S.), the there elements of a cause of action for unfair competition were (1) appropriation of the plaintiff's production, (2) competition between plaintiff and defendant, and (3) 'passing off'--the latter referring to misrepresentation by the defendant that the plaintiff's product was the defendant's. Goldstein, Federal System Ordering of the Copyright Interest, 69 Columbia Law Rev. 49, 58 (1969).

I.N.S. eliminated 'passing off' as a requirement and:

'. . . postulated a new concept of unfair competition in focusing upon the competitive relationship and stressing the reciprocal rights and duties that are peculiar to it and emanate from it.' 2 Callman, The Law of Unfair Competition, Trademarks and Monopolies (3d 1968), sec. 60.3, p. 509.

The majority in I.N.S. recognized two new causes of action differing from the 'passing off' doctrine, 'causes of action based upon the misappropriation and the exploitation of a competitor's business values.' Callman, sec. 60.3, p. 509.

The elements of the misappropriation cause of action developed in I.N.S. are: (1) time, labor, and money expended in the creation of the thing misappropriated; (2) competition; and (3) commercial damage to the plaintiff. Note, Goldstein v. California: A New Outlook For the Misappropriation Doctrine, 8 Univ. of San Francisco Law Rev. 199, 201 (1973), and Comment, Performers' Rights and Copyright The Protection of Sound Recordings from Modern Pirates, 59 Calif.Law Rev. 548, 552 (1971).

In I.N.S., the Associated Press sought an injunction against its news gathering competitor, the International News Service, to restrain I.N.S. form appropriating news from the early editions of A.P. papers and disseminating that news as I.N.S.' to I.N.S.' subscribing papers. The United States Supreme Court affirmed the Court of Appeals' injunction against I.N.S. The Court said:

'In doing this (i.e., transmitting the news from A.P. papers for commercial use, in competition with A.P.) defendant (I.N.S.), by its very act, admits that it is taking material that has been acquired by complainant (A.P.) as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and that defendant in appropriating it and selling is as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant's members is appropriating to itself the harvest of those who have sown. Stripped of all disguises, the process amounts to an unauthorized interference with the normal operation of complainant's legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not; with special advantage to defendant in the competition because of the fact that it is not burdened with any part of the expense of gathering the news. The transaction speaks for itself, and a court of equity ought not to hesitate long in characterizing it as unfair competition in business.

'The underlying principle is much the same as that which lies at the base of the equitable theory of consideration in the law of trusts--that he who has fairly paid the price should have the beneficial use of the property.' (Pp. 239, 240, 39 S.Ct. p. 72)

Thus, the essence of the cause of action in misappropriation is the defendant's use of the plaintiff's product, into which the plaintiff has put time, skill, and money; and the defendant's use of the plaintiff's product or a copy of it in competition with the plaintiff and gaining an advantage in that competition because the plaintiff, and not the defendant, has expended the energy to produce it. The wrong is not in the copying, but in the appropriation, of the plaintiff's time, effort, and money.

Relying on I.N.S., appellate courts in five jurisdictions have enjoined the actions of record pirates: Capitol Records, Inc., v. Erickson (1969), 2 Cal.App.3d 526, 532, 82 Cal.Rptr. 798, cert. den. (1970), 398 U.S. 960, 90 S.Ct. 2176, 26 L.Ed.2d 545; Capitol Records, Inc. v. Spies (1970), 130 Ill.App.2d 429, 432, 264 N.E.2d 874; National Broadcasting Co., Inc. v. Nance (Mo.Ct. of App., 1974), 506 S.W.2d 483, 484, 485; Liberty/UA, Inc. v. Eastern Tape Corporation (1971), 11 N.C.App. 20, 22, 180 S.E.2d 414, cert. den. (1971), 278 N.C. 702, 181 S.E.2d 600; and Columbia Broadcasting System, Inc. v. Custom Pecording Co., Inc. (1972), 258 S.C. 465, 478, 189 S.E.2d 305, cert. den. (1972), 409 U.S. 1007, 93 S.Ct. 437, 34 L.Ed.2d 300.

New York has also enjoined record piracy on the basis of I.N.S. See, Capitol Records, Inc. v. Greatest Records, Inc. (Sup.Ct., 1964), 43 Misc.2d 878, 252 N.Y.S.2d 553, relying on Metropolitan Opera Ass'n, Inc. v. Wagner-Nichols Recorder Corp. (Sup.Ct., 1950), 199 Misc. 786, 101 N.Y.S.2d 483, aff'd (1951), 279 App.Div. 632, 107 N.Y.S.2d 795, relying on I.N.S.

In Erickson and Eastern Tape, the California and North Carolina courts affirmed the lower courts' injunctions, whereas in Spies, Nance, and Custom Recording, the Illinois, Missouri, and South Carolina courts reversed the lower court rulings and ordered the granting of injunctions. In each of the five cases, the courts relied on common-law unfair competition to order the injunctions, there being no statutes on which to rely.

The unfair competition-misappropriation theory applied in I.N.S. and the other jurisdictions comports with the theory applied by this court in J. I. Case Plow Works v. J. I. Case Threshing Machine Co. (1916), 162 Wis. 185, 201, 155 N.W. 128, 134, where, in the action for alleged unfair competition in trade, the court said:

'The legal principles which are controlling here are simply the principles of old-fashioned honesty. One man may not reap where another has sown nor gather where another has strewn.'

This is the standard applied in I.N.S., supra. That standard is consistent with the public policy of the State of Wisconsin as stated in sec. 100.20(1), Stats., 1971:

'Methods of competition in business and trade practices in business shall be fair. Unfair methods of competition in business and unfair trade practices in business are hereby prohibited.'

We consider it immaterial that the Department of Agriculture, which has jurisdiction over rules in this area, has failed to act. The position of I.N.S. is consistent with both the common-law policy of this state as enunciated in J. I. Case, supra, and the legislative policy spelled out in the cited statute. In the absence of clear and convincing authority to the contrary, it would be improper for this court to conclude that any other rule than that stated in I.N.S. should be applied to this case.

The defendants, however, assert several reasons why the I.N.S. rule should not be applied. Defendants contend:

1. States can constitutionally regulate record piracy only by statute, not by common law.

2. I.N.S. has been overruled, or at least has been severely restricted.

3. After the sale of their records, plaintiffs have no property interest in them to protect.

4. Re-release of old songs by plaintiffs after February 15, 1972, subjects those songs to federal protection and removes them from state protection.

5. For policy reasons, the courts should defer to the legislature in the control of record piracy.

State regulation by statute vis-a-vis common law

Sears, Roebuck & Co. v. Stiffel Co. (1964), 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661, and Compco Corp. v. Day-Brite Lighting, Inc. (1964), 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669, are relied upon by defendants. In each case, plaintiffs sued the defendants in federal courts in Illinois alleging unfair competition because the defendants manufactured copies of plaintiffs' products--a pole lamp in Sears, and a fluorescent lighting fixture in Compco. In each case, the plaintiff had obtained a patent, but it was held invalid by the district courts. Sears, 376 U.S. at p. 226, 84 S.Ct. 784; Compco, 376 U.S. at p. 235, 84 S.Ct. 779. The United States Supreme Court held that plaintiffs could not maintain their actions based on state unfair competition law, because the federal patent law, under the Supremacy Clause, was controlling. The Court concluded that the patent system used uniform federal standards to promote invention and preserve free competition and, under the Supremacy Clause, state unfair competition laws could not be permitted to give protection that clashed with the objectives of the federal patent laws. Sears, 376 U.S. at pp. 230, 231, 84 S.Ct. 784.

In Goldstein v. California (1973), 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163, the petitioners therein were convicted of record piracy under the California penal statute. Relying on Sears and Compco, the petitioners argued that federal copyright law preempted the field, thus invalidating the state law. The Supreme Court held that the Constitution neither explicitly precludes states from...