Big Labels Take Aim at Pandora on Royalties

BEN SISARIO NY Times 4/17/14

The music industry has opened a new front in its war against Pandora Media: royalties for songs made before 1972.

On Thursday, several major record companies filed a lawsuit in New York State Supreme Court in Manhattan, accusing Pandora of violating the state’s common-law copyright protections by using recordings of older songs without permission. Along with a string of cases filed last year against Sirius XM Radio, the suit highlights an obscure legal issue that has come to the fore with the rise of streaming music online: that recordings made before Feb. 15, 1972, are not subject to federal copyright protection and may be missing out on tens of millions of dollars in royalties, according to industry estimates.

In the suit, the three big labels, Sony, Universal and Warner Music, along with ABKCO, an independent label that controls the rights to many early songs by the Rolling Stones, accuse Pandora of playing old songs without licenses. Like the suits last year against Sirius XM — the band the Turtles (“Happy Together”) acted first, with a $100 million class-action suit, and the labels followed with their own complaint — the case argues that even though songs from before 1972 are not under federal copyright, Pandora should have to get permission to use them under state law.

“This case presents a classic attempt by Pandora to reap where it has not sown,” the labels say in the suit. “Pandora appropriates plaintiffs’ valuable and unique property, violates New York law and engages in common law copyright infringement and misappropriation and unfair competition.”

María Elena Holly, the widow of Buddy Holly, said in a statement circulated by the Recording Industry Association of America, which coordinated the suit: “Just because Buddy and the other ’50s musicians recorded songs before 1972 doesn’t mean their songs have no value. These companies’ failure to pay the rock ’n’ roll pioneers is an injustice and it needs to change.”

The suit includes a long appendix of songs by major acts from the 1940s to the early ’70s like the Beatles, Hank Williams, Aretha Franklin, Bob Dylan, James Brown and the Rolling Stones.

A Pandora representative said the company was confident in its legal position and looked forward to a quick resolution of the matter.

Under federal copyright law, online and satellite radio services like Pandora and Sirius XM must get licenses to use recordings made after 1972, so both companies pay hundreds of millions of dollars for these recordings. Those licenses and payments are usually administered through SoundExchange, a nonprofit royalty organization that is an offshoot of the Recording Industry Association. Recordings made before 1972 do not have federal copyright protection, but are covered by a patchwork of state laws.

Traditional radio stations have a longstanding exemption from paying for recordings, although all kinds of radio outlets — Internet, satellite and old-fashioned AM/FM — pay separate songwriting royalties to music publishers. (In the music world’s complex licensing structure, “on demand” services like Spotify and Rhapsody, which let users pick exactly what songs to listen to, negotiate with record companies directly for a different kind of license, and do not face the same issue with pre-1972 recordings.)

But whether Pandora, Sirius XM and similar services need licenses under state law for the older recordings is unclear, and the current wave of lawsuits represents a concerted effort by the music industry to establish what could be a major source of revenue in the future.

Pandora, with more than 70 million regular users, and Sirius XM, with about 26 million subscribers, are two of the most popular listening services, and their contributions represent most of the $656 million in performance royalties collected by SoundExchange last year.

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