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Sheridan v. Iheartmedia, Inc.

United States District Court, N.D. Illinois, Eastern Division

June 5, 2017



          John J. Tharp, Jr. United States District Judge

         Plaintiffs Arthur and Barbara Sheridan own the master recordings of many hit songs from the 1950s and 1960s. Defendant iHeartMedia plays these recordings on its internet and traditional broadcast radio stations without paying any sort of royalty or licensing fees to the Sheridans. The Sheridans sued on behalf of themselves and others like them, claiming iHeartMedia's actions constitute common law copyright infringement, unfair competition, conversion, and unjust enrichment. iHeartMedia has moved to dismiss the complaint for failure to state a claim. For the reasons stated below, the motion is granted.

         BACKGROUND [1]

         In the 1950s and 1960s, plaintiff Arthur Sheridan owned and operated “several recording companies specializing in recording and selling doo-wop, jazz, and rhythm and blues music.” Compl. ¶ 15. He and Barbara Sheridan own the “master sound recordings” of many “fixtures” of these genres, by artists like the Flamingos, J.B. Lenoir, and the Moonglows. Id. at ¶ 16-17. They assert they also own any “intellectual property and contract rights associated with the recordings” and continue to market these recordings, receiving “revenue from licenses granted to third parties to publicly perform the recordings.” Id. at ¶ 18-19.

         Defendant iHeartMedia, operating under the name iHeartRadio, “offers internet radio services in the form of customizable music ‘stations' that stream music to users on the internet” as well as owning “hundreds” of traditional AM and FM radio stations, whose broadcasts also can be streamed online. Id. at ¶ 24. Users who listen to customized stations hear advertisements at “periodic intervals between tracks” and can skip only a limited number of tracks per day. Id. at ¶ 26. iHeartMedia has over 70 million registered users as well as millions of other conventional radio listeners. Compl. ¶ 31. According to the complaint, iHeartMedia “regularly broadcasts to Illinois listeners” the recordings owned by the Sheridans. Id. at ¶ 33. When these recordings are transmitted, the recordings are reproduced for the purposes of buffering, streaming, and other uses. Id. at ¶ 28. iHeartMedia has not obtained any licenses from the Sheridans. Id. at ¶ 34.

         This case concerns only recordings made before February 15, 1972 (“pre-1972 recordings”) because, as explained further below, sound recordings made on or after that date are subject to federal copyright law; to the extent that pre-1972 recordings have legal protection, it is provided by state law (statutory and common law) rather than federal law. The Sheridans filed this putative class action on behalf of themselves and other “owners of reproduction and public performance rights in Pre-1972 Recordings that have been publicly performed. . . by iHeartRadio . . . .” Id. at ¶ 37. They assert four state law claims: that iHeartMedia infringed their common law state copyright (Count I), that iHeartMedia misappropriated their property under the Illinois Uniform Deceptive Trade Practices Act (“IUDTPA”) (815 ILCS 510/1 et seq.) (Count II), that iHeartMedia converted their property rights (Count III), and that iHeartMedia has been unjustly enriched (Count IV). iHeartRadio has moved to dismiss all of the claims (see Mot., ECF No. 22), which are discussed in more detail below.


         A. Jurisdiction

         The Sheridans assert this court has jurisdiction under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d), because at least one class member is a citizen of a different state than the defendant, there are more than 100 class members, and the aggregate amount in controversy exceeds $5, 000, 000. Compl. ¶ 8. iHeartMedia has not contested the sufficiency of the class allegations to confer subject matter jurisdiction, and given the large number of recordings that could potentially be covered by a ruling on pre-1972 recordings, the Court finds the class allegations as to diversity and the amount in controversy to be reasonable. See Back Doctors Ltd. v. Metro. Prop. & Cas. Ins. Co., 637 F.3d 827, 830 (7th Cir. 2011) (“the estimate of the dispute's stakes advanced by the proponent of federal jurisdiction controls unless a recovery that large is legally impossible”). As claims under the Class Action Fairness Act are still governed by state law like any other claim brought under diversity jurisdiction, the Court applies Illinois law (and neither party has suggested that the Court should do otherwise). See Springman v. AIG Mktg., 523 F.3d 685, 686 (7th Cir. 2008).

         B. Common Law Copyright

         Federal copyright law extends to sound recordings created on or after February 15, 1972. Copyright protection for sound recordings “fixed” (recorded) prior to February 15, 1972, however, is a matter of state law, rather than federal law. See 17 U.S.C. § 301(c). Both parties offer their own takes on the history of copyright law, but the basic undisputed fact is that for decades, the federal Copyright Act provided no protection for sound recordings (as distinct from protected lyrics and musical notes). Much lobbying was done on the subject, but there was little litigation. See Danielle Ely, Note, We Can Work It Out: Why Full Federalization of Pre-1972 Sound Recordings is Necessary to Clarify Ambiguous and Inconsistent State Copyright Laws, 23 Geo. Mason L. Rev. 737, 740-742 (2016). In 1971, Congress enacted the Sound Recordings Act (“SRA”), which provided limited protection for sound recordings fixed after it went into effect in 1972. See Pub. L. No. 92-140, sec. 1(a), § 1(f), 85 Stat. 391, 391 (1971). In 1976, Congress added the language currently found at § 301(c), which clarifies that state copyright law governs pre-1972 recordings.[2]

         Illinois has no state copyright statute governing sound recordings, unlike some other states, such as California. See Cal. Civ. Code § 980(a)(2); see also Flo & Eddie Inc. v. Sirius XM Radio Inc., No. CV 13-5693 PSG RZX, 2014 WL 4725382, at *4 (C.D. Cal. Sept. 22, 2014), reconsideration denied, No. CV 13-5693 PSG (RZX), 2015 WL 9690320 (C.D. Cal. Feb. 19, 2015). The question, then, is whether Illinois provides common law copyright protection to pre-1972 sound recordings that have been sold to the public, but were not licensed by the defendant for public performance. [3]

         Illinois recognizes a common law copyright in unpublished productions of “literature, [] drama, music, art, etc.” that allows authors to control the initial publication of their work. Frohman v. Ferris, 87 N.E. 327, 328 (Ill. Sup. Ct. 1909); Morton v. Raphael, 79 N.E.2d 522, 523 (Ill.App.Ct. 1948) (“the settled rule of law in this and other jurisdictions” is “publication without copyright divests the owner of an exclusive common law right and the production becomes common property, subject to the free use of the community”). Publication, however, extinguishes the common law copyright. Rees v. Peltzer, 75 Ill. 475, 478 (Ill. Sup. Ct. 1874) (“there is no copyright in a published work at common law”) (emphasis in original). Under Illinois law, then, the dispositive question as to whether there is copyright protection that includes the right to exclusive public performance of a sound recording is whether the work has been “published.” This question in turn depends upon whether it can be said that the copyright holder has dedicated, or donated, the work to the public, Raphael, 79 N.E.2d at 523, or, conversely, has effectively limited its distribution. In Frohman, for example, a playwright successfully sued a competitor who put on a nearly identical production of his play. 87 N.E at 329. Frohman had never published his manuscript, but he had overseen public productions of the play. Id. The Court held such performances did not constitute publication of the play, citing copyright treatises of the era for the proposition that under the common law “the author does not lose his rights in the production by public representation [i.e., performance].” Id. at 328 (bracketed material added). The Illinois Supreme Court did not view performance as indicative of an intent to surrender the author's common law copyright, distinguishing a limited performance of the play from having the composition “printed and published in a book.” Id. In Raphael, by contrast, an artist “made the first publication” of a series of murals “when she painted them on the walls of the Great Lakes Room where they could be seen and were undoubtedly observed by many persons.” Raphael, 79 N.E.2d at 523. Of course, the same might be said of public performances of the play at issue in Frohman, but such are the challenges of applying the common law.

         Whether the Sheridans can be said to have “dedicated to the public” their recordings has therefore been the principal sticking point for the parties, with the Sheridans arguing that “virtually no public domain” exists for sound recordings and that they have not “surrender[ed]” their copyright to the public. Pl.'s Resp. at 2, 7. Both the Illinois Supreme Court and the Seventh Circuit, however, have construed the concept of dedication to the public to include acts by which members of the public could access copies of the work - particularly through sales. See, e.g., Peltzer, 75 Ill. at 479 (publication of maps made “by selling several copies to real estate dealers without any restriction as to their use”); Data Cash Sys. v. JS&A Grp., Inc., 628 F.2d 1038, 1042 (7th Cir. 1980) (2, 500 sales of computer games sufficient to constitute publication). The Sheridans, of course, offered the recordings at issue in this case for sale to the public and found many, many buyers.[4]

         The Sheridans nevertheless argue that sound recordings constitute a “special case” because they involve “captured performance.” Relying on Frohman, the Sheridans argue that performance of a work does not constitute publication sufficient to divest them of their common law copyrights, but in so arguing they confuse the conduct at issue. In Frohman, the question was whether the public performance of the composition (there, a play) divested the composition itself of its copyright protection, such that the owner no longer had the right to limit performance of the work. The issue here, however, is not whether the musical compositions have copyright protection but whether the recordings of performances of those compositions are protected. By selling such recordings, the Sheridans did not, and could not, divest the compositions of their copyright protection. But they could, and did, divest the recordings of performances of those compositions of common law copyright protection by selling those recordings to the public.

         In any event, and contrary to the Sheridans' position, under Illinois law “it is eminently clear that the broadcast of the records manufactured by Plaintiff or the sale of those records constitutes a publication or public performance, ” and therefore no common law copyright protection is available for those recordings. Columbia Broad. Sys., Inc. v. Spies, Doing Bus. as Tape-A-Tape Tape Sound Reprod. Co. (”Spies II”), No. 69-CH-3477, 1970 WL 10120 (Ill. Cir. Ct. Oct. 19, 1970) (unpaginated).[5] In Spies II, the only occasion an Illinois court has specifically addressed whether a common law copyright might be available for sound recordings, [6] the court rejected CBS's common law copyright claim against Spies, who was making copies for commercial resale from the original records produced and sold to the public by CBS, holding that by virtue of those sales, CBS had no copyright claim against Spies. The case therefore plainly puts the lie to the Sheridans' contention that “[s]ale to the public is not a ‘publication' that destroys ownership of pre-1972 recordings”-at least to the extent that ownership implies copyright protection under Illinois law.[7]

         The Sheridans invoke a number of out of state cases and treatises to support their position that sales of a sound recording do not divest an owner of their copyright (such as Capitol Records, Inc. v. Naxos of Am., Inc., 830 N.E.2d 250, 264 (N.Y. Ct. App. 2005)), but none of these sources addresses Illinois law. Moreover, the Sheridans rely most heavily on New York law, and whatever persuasive force the New York cases they have cited may have had when the Sheridans filed their briefs has been dissipated by the result of the recent collaboration between the New York Court of Appeals and the Second Circuit. Answering a question certified to it by the Second Circuit in another case brought by a putative copyright holder of other pre-1972 recordings, the New York high court held that New York law does not recognize a right of public performance for creators of pre-1972 sound recordings. See Flo & Eddie, Inc. v. Sirius XM Radio, Inc., 70 N.E.3d 936, 949 (N.Y. 2016) (“New York's common-law copyright has never recognized a right of public performance for pre-1972 sound recordings.”). Based on that ruling, the Second Circuit reversed the district court's denial of the defendant broadcaster's motion for summary judgment and remanded the case for entry of judgment in the broadcaster's favor. Flo & Eddie, Inc., v. Sirius XM Radio, Inc., 849 F.3d 14, 17 (2d Cir. 2017).

         The Sheridans maintain that this result is “draconian, ” but of course such a judgment, even if deserved, would not authorize this Court to disregard the clear import of Illinois law. The Sheridan's characterization, moreover, depends for its force on the premise that they are being unfairly denied compensation for their products, but why is that so? From the birth of sound recordings until the mid-1990's, there has been scant evidence that anyone considered it to be an obvious injustice not to require broadcasters, or others who play recorded music publicly, to pay royalties to record companies as compensation for the use of their recordings. Flo & Eddie, 70 N.E.3d at 941 (if there is a right to control public performance of sound recordings, “the copyright holders have gone decades without acting to enforce that right.”). Private parties routinely order their transactions to adjust to legal rules, see R.H. Coase, The Problem of Social Cost, 3 J. L. & Econ. 1, 17 (1960), and here is a perfect example; an alternative compensation system evolved in which consumers paid prices to record companies high enough to incentivize continued artistic creation but low enough that public performance of the recordings fostered, rather than eliminated, the market for the recordings. As the Third Circuit has observed, “this state of affairs . . . produced relatively high levels of contentment for all parties. The recording industry and broadcasters existed in a sort of symbiotic relationship wherein the recording industry recognized that radio airplay was free advertising that lured consumers to retail stores where they would purchase recordings. And in return, the broadcasters paid no fees, licensing or otherwise, to the recording industry for the performance of those recordings.” Bonneville Int'l Corp. v. Peters, 347 F.3d 485, 487-88 (3d Cir. 2003). Even today, this system survives largely intact; there is still no requirement that traditional broadcasters pay such royalties.[8] The argument that this long-extant system exacts “draconian”-i.e., fundamentally unfair-costs is not compelling.

         There is no dispute that the Sheridans voluntarily sold their recordings. When they did so, the Sheridans lost their common law right to control the public performance of those recordings in Illinois (and pretty much everywhere else).[9] Thus, the motion to dismiss is granted as to Count I, the common law copyright claim.

         B. Deceptive ...

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