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May 6, 2003


The opinion of the court was delivered by: Robert W. Sweet, United States District Judge


Defendant Naxos of America, Inc. ("Naxos") has moved under Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the complaint of plaintiff Capitol Records, Inc. ("Capital") and Capital Records, in turn, has moved for partial summary judgment under Rule 56, Federal Rules of Civil Procedure.

For the reasons set forth below, the Naxos motion to dismiss is converted to a summary judgment motion and granted. The Capitol motion for partial summary judgment is denied.

Prior Proceedings

This action was commenced in the Southern District Court of New York on November 22, 2002. The motion was heard and marked fully submitted on February 12, 2003.

The Parties

Capitol, a manufacturer and distributor of sound recordings in the United States, is a Delaware corporation with its principal place of business located at 150 Fifth Avenue, New York, New York.

Naxos is a foreign corporation with its principal place of business located at 416 Mary Lindsay Polk Drive, Franklin, Tennessee. Naxos is a wholly-owned subsidiary of HNH International Ltd. and the United States distributor of sound recordings under HNH international's "Naxos" label.

The Complaint

Capitol brings this diversity action for unfair competition, misappropriation of property, unjust enrichment, and common law copyright infringement. (Complaint ¶ 1.) Capitol challenges Naxos' distribution of certain historic performances dating from the 1930's, namely: (i) Yehudi Menuhin's performance of Edward Elgar's "Violin Concerto in B minor, Opus 61," recorded in London, England on July 14 and 5, 1932, and Yehudi Menuhin's performance of Max Bruch's "Violin Concerto No. 1 in G minor, Opus 26,"*fn1 recorded in London on November 25, 1931 (the "Menuhin Performances"), which Naxos first released on October 1, 1999; (ii) Pablo Casals' performances of the J.S. Bach cello suites recorded in Europe between November 1936 and June 1939 (the "Casals Performances"), which Naxos first released on September 5, 2000, and (iii) Edwin Fischer's performance of J.S. Bach's "The Well Tempered Clavier, Book I," recorded between April 1933 and August 1934 in London, England, and Fischer's performance of Bach's "The Well Tempered Clavier, Book II," recorded between February 1935 and June 1936 in London, England (collectively, the "Fischer Performances), which Naxos first released on October 1, 2000 and January 1, 2001 (the Menuhin Performance, the Casals Performances and the Fischer Performances, collectively, the "subject performances").

Capitol alleges that its corporate affiliate and licensor, EMI Records Limited ("EMI"), formerly known as The Gramophone Company Limited ("Gramophone") owns exclusive rights to the original shellac recordings of these subject performances ("the original recordings"). (Complaint ¶¶ 10-12.) At all relevant times, Capitol claims to be the owner of all rights in the United States to the original recordings. (Complaint ¶ 13.) In or about 1999, without Capitol's permission or authority, Naxos commenced to sell and distribute restorations of the original recordings throughout the United States. (Complaint ¶ 15.) It is alleged that these restorations are sold at substantially discounted prices in direct competition with Capitol's recordings of the subject performances, often in the same retail outlets. (Complaint ¶ 16.) Despite its repeated demands that Naxos cease its distribution of restored recordings, Capital claims that Naxos "continues to exploit the subject recordings in blatant disregard of plaintiff's rights under the laws of New York and the several states." (Complaint ¶¶ 3, 18).

Conversion to a Summary Judgment Motion

In this case, as there is a well-developed factual record relevant to the disposition of issues raised and as both parties have had "ample opportunity to present relevant material . . . and did so," it is appropriate to convert Naxos' motion to dismiss to a summary judgment motion. See In re G. & A. Books, Inc., 770 F.2d 288 (2d Cir. 1985). In upholding such a conversion, the Second Circuit explained:

The essential inquiry is whether the appellant should reasonably have recognized the possibility that the motion might be converted into one for summary judgment or was taken by surprise and deprived of a reasonable opportunity to meet facts outside the pleadings. . . . A party cannot complain of lack of a reasonable opportunity to present all material relevant to a motion for summary judgment when both parties have filed exhibits, affidavits, counter-affidavits, depositions, etc. in support of and in opposition to the motion to dismiss.
Id. at 295. See also Cook v. Hirschberg, 258 F.2d 56, 57-58 (2d Cir. 1958); Condon v. Local 2944, United Steelworkers of America, 683 F.2d 590, 593-94 (1st Cir. 1982); Nat'l Family Ins. Co. v. Exchange Nat'l Bank of Chicago, 474 F.2d 237 (7th Cir.). Here, Naxos provided the Court with a wealth of facts (Heymann Decl.; Ledin Decl; Martson Decl.; Obert-Thorn Decl.), and Capitol has itself moved for summary judgment. Furthermore, in its memorandum of law in support of its motion to dismiss, Naxos states, "To the extent the Court determines that consideration of these declarations is not appropriate in the context of a Rule 12(b)(6) motion to dismiss, it may convert the motion to one for summary judgment." (Naxos Mem. at 3 n. 1.). Both parties should thus "reasonably have recognized the possibility" of conversion. In re G. & A. Books, Inc., 770 F.2d at 295.


The facts are set forth based upon the Local Rule 56.1 statements of Capitol, the response by Naxos, and the parties' pleadings and affidavits.

In the 1930's, Gramophone (subsequently EMI), Capitol's affiliate and licensor, obtained copyrights in the subject performances. Each of the musicians signed an agreement granting Gramophone "sole exclusive worldwide rights" to their performances. (Lyttelton Decl. ¶¶ 3-5.) All of these agreements are to "be construed according to the Laws of England." and none of these agreements specifies the intent of the parties concerning the duration or scope of transferred rights. (Lyttelton Decl., Ex. 2-4.) According to English law, the copyrights in the agreements expired, at the latest, in 1986, and the recordings have entered the public domain internationally.

Gramophone paid all costs associated with recording the subject performances, including compensation for the musicians.

There is some dispute as to the payment of royalties. Capitol alleges that Gramophone and EMI paid royalties to the musicians in connection with the subject performances, and EMI continues to pay royalties on all United States' sales of the subject works. However, it is unclear from the documentation of royalty payments, the length of time in which royalties were paid, or if they were consistently paid. According to the Menuhin and Fischer agreements, royalties were only to be paid during the life of the performer.

There is also some contention as to the chain of title leading to Capitol. Capitol claims that its interests in the recordings were transmitted in a Matrix Exchange Agreement from EMI Music International Services Ltd. ("EMIMIS"), who received them from EMI. First, it is unclear when and how rights were transferred from EMI to EMIMIS. Second, the Matrix Exchange Agreement was ...

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