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EMI Entertainment World, Inc. v. Karen Records

March 30, 2009

EMI ENTERTAINMENT WORLD, INC., PLAINTIFF,
v.
KAREN RECORDS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard J. Holwell, District Judge

MEMORANDUM OPINION AND ORDER

This case arises out of a long-running royalty dispute between Karen Records, Inc. ("Karen"), a Latin record company, and the Harry Fox Agency ("Harry Fox"), the mechanical licensing clearinghouse. It raises interesting questions about the Copyright Act's compulsory mechanical licensing scheme for nondramatic musical works.

For many years, Karen and Harry Fox have disputed the amount of royalties that Karen owes music publishers represented by Harry Fox. In this action, one such publisher, EMI Entertainment World, Inc. ("EMI"), claims that Karen infringed its copyrights because Karen never acquired mechanical licenses for four songs it included on compilation albums. While the lawsuit is brought in EMI's name, Harry Fox is the driving force behind it.

The parties' dispute focuses on the scope of Karen's authorization to use EMI's compositions. In particular, the parties disagree about whether Karen acquired mechanical licenses to EMI's compositions, and the scope of the protection afforded by those licenses. Both Karen and EMI have moved for summary judgment. For the reasons that follow, the parties' motions are granted in part and denied in part.

I. BACKGROUND

A. The Parties and Compositions in Suit

Karen, the defendant, is a record company and "the home of the best merengues, bachatas and sones." (Karen Music, http://www.karenmusic.net/ingles/ index.htm (last visited Mar. 19, 2009).) Harry Fox is a mechanical licensing agency for music publishers, which describes itself as "a 'one stop shop' for most mechanical licensing in the United States." (Badavas Decl. ¶ 6.) Plaintiff EMI is a music publisher that Harry Fox represents. (Id. ¶ 4-5.)

The parties have a long history of disputes, but this case concerns four specific compositions: (i) La Colegiala by Grover Walter Leon Aguilar; (ii) Corazón Partío by Alejandro Sanz; (iii) Cuando Acaba el Placer by Nacho Mano; and (iv) Fuiste Mia un Verano by Leonardo Favio and Vico Berti. (Badavas Decl. ¶ 18.) As the case turns on Karen's obligations under the compulsory licensing system for nondramatic musical works established in § 115 of the Copyright Act, 17 U.S.C. § 115 (2006), the Court begins with a brief description of that system.

B. Compulsory Mechanical Licensing and the Harry Fox Agency

Under § 115, a nondramatic musical composition (i.e., a song's words and music) that has been reproduced in phonorecords with the permission of the copyright owner may be reproduced in phonorecords by another person, if that person notifies the copyright owner and pays a royalty fixed by law. See 17 U.S.C. § 115; Notes of Committee on the Judiciary, H.R. Rep. 94-1476 (Sept. 3, 1976), as reprinted in 17 U.S.C.A. § 115, at 472 (2005).*fn1 Section 115's precursor allowed the act of "mechanically" recording a song on media such as phonographic records or piano rolls.

(3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 8.04[A], at 8-58-4 (2008) ("Nimmer").) Thus for purely historical reasons a license acquired under § 115 is referred to as "mechanical" license. (Id.)

By regulation, the current royalty for a mechanical license is the greater of (i) 9.1 cents per track or (ii) 1.75 cents per partial minute of a track's playing time. 37 C.F.R. § 255.3 (2008). As a result, a record company that wants to produce a compilation CD with twelve tracks on it can expect to pay about a dollar per CD for mechanical licenses (12 x $.091 = $1.092), unless it can negotiate better rates with the entities that hold the copyrights to the compositions included on the CD. Section 115(c)(3)(B) of the Copyright Act expressly contemplates such private negotiation, and exempts license clearinghouses from the antitrust laws.*fn2

To obtain a mechanical license, a licensee must follow the procedure specified in § 115(b). The essential requirement is that the licensee serve notice of its intent to make use of the composition on the copyright owner. Such notice must be served before, or within thirty days after, the licensee makes phonorecords of the composition. § 115(b).

In addition, the notice must be served before distribution of the phonorecords begins. Id.

An implementing regulation, 37 C.F.R. § 201.18, specifies the form, content, and manner of service for the notice. For example, the notice must have a title that only a lawyer could love, "Notice of Intention to Obtain a Compulsory License for Making and Distributing Phonorecords." § 201.18(c)(1). It must contain a "clear statement," § 201.18(c)(2), identifying the licensee, the musical composition for which a license is sought, and the phonorecords that will be made and distributed. And the notice must be signed by the licensee. See § 201.18(d).

These requirements need not be followed with Prussian rigidity, however. Under § 201.18(g), "[h]armless errors in a Notice that do not materially affect the adequacy of the information required to serve the purposes of [§ 115(b)] shall not render the Notice invalid." Thus, if the purposes of § 115(b) are served, technical noncompliance with 37 C.F.R. § 201.18 does not prevent a licensee from acquiring a compulsory mechanical license.

Once a license is issued, the licensee must make monthly royalty payments to the copyright holder. See 17 U.S.C. §§ 115(c)(2), 115(c)(5). A licensee's failure to pay royalties, however, does not result in her license terminating automatically. Instead, § 115 puts the burden on the copyright owner to "give written notice to the licensee that, unless the [licensee's] default is remedied within thirty days from the date of [notice of default], the compulsory license will be automatically terminated." § 115(c)(6). Once a rightsholder terminates a license, the licensee becomes liable for all production or distribution for which it did not pay a statutory royalty. In the words of the statute, "termination renders either the making or the distribution, or both, of all phonorecords for which the royalty has not been paid, actionable as acts of infringement under section 501 and fully subject to the remedies provided by sections 502 through 506 and 509." § 115(c)(6).

In practice, questions about how § 115(b) operates are largely academic. Most record companies do not make use of the process outlined therein, but acquire licenses from Harry Fox, which is authorized to issue mechanical licenses on behalf of the major U.S. music publishers. (See Badavas Decl. ¶ 6.) Licenses issued by Harry Fox do not, however, alter the basic rights and obligations of the licensee under § 115. (See id. ¶ 7.) Thus, the net effect Harry Fox's involvement in the licensing process is to streamline the procedures created by §§ 115(b) and 115(c), with the statute acting as a "ceiling" on the price a copyright owner may charge for a mechanical license. (Nimmer, § 8.04[I], at 8-81 to 8-82.)

C. The Present Dispute

This lawsuit concerns Karen's obligations to pay statutory royalties for three CDs it released between 1999 and 2001.

In the summer of 1999, Karen developed plans to release CDs entitled Mas Romantico and Bomba 2000. (See Rodriguez Aff. ¶¶ 24, 43.) On July 6, 1999, Karen faxed preprinted forms to Harry Fox requesting licenses for two songs it intended to include on Mas Romantico-Cuando Acaba el Placer and Corazón Partío. (See Rodriguez Aff. Ex. E.)*fn3 The forms listed Karen's name and contact information, the names and authors of the compositions for which Karen sought licenses, and the publishers that owned the rights to those compositions. (Id.) The forms further indicated that the songs would be included on Mas Romantico. (Id.) In the forms' "explanation" fields, someone wrote, "Please issue and release ...


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