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Re: [ARSCLIST] Fw: [78-l] (Fwd) Naxos Wins Landmark Case Against Capitol/EMI
At 02:29 PM 6/9/2003 -0400, Steven Smolian wrote:
This was sent me by Cary Ginell of Sound Thinking. Informed comments
I'm sorry - I did not think that this would be of interest to the group. I
have had the decision itself since it was rendered. There is a glitch in an
early paragraph - I believe a couple of lines are missing - but the text is
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CAPITOL RECORDS, INC.,
02 Civ. 7890 (RWS)
- against -
O P I N I O N
NAXOS OF AMERICA, INC.,
A P P E A R A N C E S:
KAPLAN GOTTBETTER & LEVENSON
Attorneys for Plaintiff
630 Third Avenue
New York, NY 10017
By: PAUL R. LEVENSON, ESQ.
Attorneys for Defendant
620 Fifth Avenue
New York, NY 10020-2457
By: MAXIM H. WALDBAUM, ESQ.
LORA A. MOFFATT, ESQ.
LORI D. GREENDORFER, ESQ.
JOSEPH PETERSEN, ESQ.
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.
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.
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,
Naxos is a foreign corporation with its principal place
of business located at 416 Mary Lindsay Polk Drive, Franklin,
1 Although the Menuhin/Bruch recording was not mentioned in
Capitol's original complaint, Capitol properly amended its
complaint to include this recording. See Section II.
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.
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,"1 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
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 executed in 1996, years after any copyright in the
sound recordings at issue expired in England.
Naxos used the original recordings, the so-called
shellacs, to restore the subject performances. The restorations
involved artistic choices and the use of the latest digital
software. Since in or about October 1999, Naxos has distributed
and sold these restorations at discount prices throughout the
United States. The Naxos restorations have been widely praised by
classical music critics.
Naxos distributed its restorations without Capitol's
authorization. In a December 21, 1999 letter to Naxos, Capitol
objected to Naxos' distribution of the restored recordings and
requested that Naxos cease and desist. Naxos refused, continuing
to sell the restorations throughout the United States.
Naxos alleges that EMI expressly disclaimed any exclusive
commercial interest in the original recordings more than fifty
years ago. EMI informed Mr. Richard Warren, the Curator of Yale
University's Historical Sound Recordings Collection, that it had no
intellectual property rights to historical recordings that were out
of copyright in the United Kingdom.
EMI's own restorations of the original recordings,
distributed in the United States, claim copyright solely in the
restored versions of the performances and not in the underlying
sound recordings. The "reservation of rights" language relied upon
by Capitol to dispute this claim refers only to EMI's restorations
of the original recordings and not to the underlying recordings.
Capitol has, furthermore, failed to pursue others
engaging in restorations of the original recordings.
I. SUMMARY JUDGMENT
A. The Summary Judgment Standard
Summary judgment is granted only if there is no genuine
issue of material fact, and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(c); see generally
6 James Wm. Moore, et al., Moore's Federal Practice ¶ 56.15 (2d ed.
1983). The court will not try issues of fact on a motion for
summary judgment, but, rather, will determine "whether the evidence
presents a sufficient disagreement to require submission to a jury
or whether it is so one-sided that one party must prevail as a
matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
The moving party has the burden of showing that there are
no material facts in dispute, and the court must resolve all
ambiguities and draw all reasonable inferences in favor of the
party opposing the motion -- in this instance, the defendants.
Bickhardt v. Ratner, 871 F. Supp. 613 (S.D.N.Y. 1994) (citing
Celotex Corp. v. Catrett, 477 U.S. 317 (1986). Thus, "[s]ummary
judgment may be granted if, upon reviewing the evidence in the
light most favorable to the non-movant, the court determines that
there is no genuine issue of material fact and the movant is
entitled to judgment as a matter of law." Richardson v. Selsky, 5
F.3d 616, 621 (2d Cir. 1993).
A material fact is one that would "affect the outcome of
the suit under the governing law," and a dispute about a genuine
issue of material fact occurs if the evidence is such that "a
reasonable jury could return a verdict for the nonmoving party."
Anderson, 477 U.S. at 248; R.B. Ventures, Ltd. v. Shane, 112 F.3d
54, 57 (2d Cir. 1997).
The burden on the moving party is especially stringent in
cases where no there has been no discovery. "[O]nly in the rarest
of cases may summary judgment be granted against a [party] who has
not been afforded the opportunity to conduct discovery."
Orminiski, 105 F. Supp.2d at 7.
1. Applicable Law
Both parties agree that as sound recordings "fixed before
February 15, 1972," the original recordings are not protected by
federal copyright law. 17 U.S.C. § 104A(h)(6)(C)(ii). Capitol
thus maintains that it "asserts no federal copyright claim in this
action." (Def's Opp. Mem. at 8 n.7.)
However, as pre-1972 recordings, the original recordings
are covered by state common law protections until February 15,
2067. As 17 U.S.C. § 301(c) provides: "With respect to sound
recordings fixed before February 15, 1972, any rights or remedies
under the common law or statutes of any State shall not be annulled
or limited by this title until February 15, 2067."
As Capitol concedes, the "hot news" doctrine is not a
common law protection applicable to this case. (Pl.'s Mem. at 17.)
This doctrine creates a narrow quasi property right in news, which
as facts "may not be copyrighted," Fin. Info., Inc. v. Moody's
Investors Serv. Inc., 808 F.2d 204, 207 (2d Cir. 1986), only as
against business competitors and only until its commercial value as
"hot news" has passed. Int'l News Serv. v. Associated Press, 248
U.S. 215, 236 (1918). In upholding its ruling, the Supreme Court
emphasized "[t]he peculiar value of new is in the spreading of it
while it is fresh." Id. at 235. This is definitely not the case
with music or other artistic works, which continue to be salable
when old, as this case demonstrates. The "hot news" doctrine thus
creates a special protection for certain information, normally
outside the realm of copyright coverage, and it does not affect or
limit protection of artistic works. It is "concerned with the
copying and publication of information gathered by another before
he has been able to utilize his competitive edge." Fin. Info.,
Inc., 808 F.2d 204, 209 (applying the "hot news" doctrine to
information about bond calls). See also Nat'l Basketball Ass'n v.
Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997) (applying the "hot
news" doctrine to the transmission of "real-time" NBA game scores
Capitol must, therefore, rely exclusively on New York
common law -- a hybrid copyright, unfair competition cause of
action -- in supporting its claims. See Apple Corps Ltd. v.
Adirondack Group, 476 N.Y.S.2d 716 (1983) (upholding common law
unfair competition claims for the unauthorized manufacture and sale
of 14 to 20 year old Beatles' recordings); Firma Melodiya v. ZYX
Music GmbH, 882 F. Supp. 1306, 1316 n.14 (S.D.N.Y. 1995)
("Melodiya's common law copyright and unfair competition claims are
not preempted by the Federal Copyright Act since the master
recordings were made prior to February 15, 1972, the date when
Congress first extended federal copyright protection to sound
recordings."); Artista Records, Inc. v. MP3 Board, No. 00 Civ.
4660, 2002 WL 1997918, at *12 (S.D.N.Y. Aug. 29, 2002) (recognizing
an unfair competition claim pursuant to New York common law with
respect to the electronic file sharing of record companies' pre-
Capitol is correct to claim that the original recordings
need not be from "commercially available sources" in order to
receive this protection. In Apple Corps, defendants sold unauthorized
copies of recordings of Christmas messages to members of the
Beatles' Fan Clubs that were never commercially distributed. 476
N.Y.S.2d at 719. In Metropolitan Opera Ass'n v. Wagner-Nichols
Recorder Corp., defendant's recordings were made directly from
public radio broadcasts, not from records. 101 N.Y.S.2d 483, 487
(1950). Similarly, in Artista, defendant's website permitted
internet file sharing and copying of computer-stored version of
plaintiff's recordings, and not copying from any commercially
2 In the parties' papers, there is some fuzziness as to
whether it is Capitol's interests in the original recordings or in
the subject performances that is at stake. The agreements with the
musicians to "rights to musical performances." (Lyttelton Decl. ¶¶
2-4.) However, these performances have already taken place, and
Naxos does not seek the right to profit from an alternative
broadcasting of these performances. Compare with cases discussed
in Metropolitan Opera, 101 N.Y.S.2d at 495-96. E.g., Rudolph Mayer
Pictures Inc. v. Pathe News Inc., 255 N.Y.S. 1016 (1st Dep't 1936)
(protecting plaintiff's exclusive right to take and sell pictures
of the Sharkey-Walker boxing match and enjoining defendants from
distributing pictures they had taken of the boxing match);
Pittsburgh Athletic Co. v. KQV Broadcasting Co., 24 F. Supp. 490
(W.D. Penn. 1938) (sustaining plaintiff's exclusive right to
control the broadcasting of descriptions of baseball games and
enjoining defendants from broadcasting play-by-play descriptions of
the games). Thus, this case only deals with any rights transferred
from the performances to the original recordings.
available source- 2002 WL 1997918, at *1.
2. Capitol Has No Rights in the Original
As an initial matter, it is irrelevant whether Capital
made restorations of the original recordings of the subject
performances available "intermittently" (Def.'s Mem. at 2) or
"continuously" (Pl.'s Mem. at 4). Capital either has a protected
interest in the original shellac recordings, or it does not. It
does not lose its interest by failing to make use of it. Unlike
the "use-it-or-lose-it" principle in trademark law, copyright
owners also have the right not to distribute a work. Seshadri v.
Kasraian, 130 F.3d 798, 805 (7th Cir. 1997) ("Implicit in the
copyright holder's exclusive right to distribute copies of his work
to the public . . . is the right not to publish the work.").
However, the facts are inadequate to support Capitol's
claim of intellectual property rights in the original recordings.
The English copyrights in the agreements have long since expired,
there is ambiguity concerning Capitol's chain of title and the
agreement with Casals, and Capitol appears to have waived or
abandoned any interests it had in the original recordings.
In the agreement with Casals, there is no identified (UK)
copyright holder because there is no specific mention of the
ownership of the plate. Under applicable English copyright law,
the owner of any copyright interest in a sound recording depends
upon ownership of the plate. Copyright Act, 1911, § 19 ("[T]he
person who was the owner of such original plate at the time when
such plate was made shall be deemed to be the author of the
Additionally, Capitol waived and abandoned any rights in
the original recordings. EMI expressly disclaimed any intellectual
property rights in sound recordings made prior to 1957 and which
are more than fifty years old. EMI informed Mr. Richard Warren,
the Curator of Yale University's Historical Sound Recordings
Collection, in response to his inquiry as to "what procedure, if
any, Yale was required to undertake with respect to third party
requests to make . . . copies of historical recordings made by EMI
prior to 1972," that it had no intellectual property rights to
historical recordings that were out of copyright in the United
Kingdom. (Warren Decl. ¶¶ 4-10.) According to Mr. Warren, EMI has
never changed its policy that such works are in the "public
domain." (Warren Decl. ¶¶ 9, 10.) Yale currently charges
publishers a fee in exchange for access to historic recordings
where such access is for the purpose of restoration and commercial
re-issue. Thus, as EMI is aware, Yale's collection serves as a
revenue-generating side enterprise. (Heymann Decl. II ¶ 8.)
A claim of waiver requires proof of an "intentional
relinquishment of a known right with both knowledge of its
existence and an intention to relinquish it." Airco Alloys Div. v.
Niagara Mohawk Power Corp., 76 A.D.2d 68, 81, 430 N.Y.S.2d 179, 187
(4th Dep't 1980) (quoting Werking v. Amity Estates, 2 N.Y.2d 43,
52, 155 N.Y.S.2d 633, 642 (1956)); see also Penguin Books U.S.A.,
Inc. v. New Christian Church of Full Endeavor, Ltd., No. 96 Civ.
4126, WL 1028634, at *20 (S.D.N.Y. July 25, 2000) (same). A waiver
"may arise <by express agreement or by such conduct or failure to
act as to evince an intent not to claim the purported advantage.'"
Gresser v. Princi, 128 A.D.2d 752, 753, 513 N.Y.2d 462, 464 (2d
Dep't 1987) (quoting Hadden v. Consol. Edison Co., 45 N.Y.2d 466,
469, 410 N.Y.S.2d 274 (1978)). EMI's conduct with regards to the
Yale University recordings qualifies as a waiver. Moreover, "[a]
waiver to the extent that it has been executed, cannot be expunged
or recalled." Nassau Trust Co. v. Montrose Concrete Prods. Corp.,
56 N.Y.2d 175, 184, 451 N.Y.S.2d 663, 668 (1982).
To establish abandonment, the defendant must demonstrate:
"(1) an intent by the copyright holder to surrender rights in the
work; and (2) an overt act evidencing that intent." Paramount
Pictures Corp. v. Carol Publ'g Group, 11 F. Supp.2d 329, 337
(S.D.N.Y. 1998); see also Penguin Books, WL 1028634, at *20 (same).
In Stuff v. E.C. Publ'ns, Inc., 342 F.2d 143, 144-45 (2d Cir.
1965), the court found abandonment where the copyrighted work "had
appeared over a long period of time and . . . plaintiff's husband
had been most derelict in preventing others from infringing his
copyright. The findings . . . support the inference . . . that the
copyright owner authorized or acquiesced in the wide circulation of
the copies without notice." Similarly, in Fashion Originators
Guild of Am., Inc. v. FTC, 114 F.2d 80, 84 (2d Cir. 1940), aff'd,
312 U.S. 457 (1941), the court explained that offering clothing
containing a design for general sale placed the design in the
public domain to be freely copied by third parties.
Likewise, in Bell v. Combined Registry Co., 397 F. Supp.
1241, 1247 (N.D. Ill. 1975), aff'd, 536 F.2d 164 (7th Cir. 1976),
plaintiff was found to have abandoned his copyright interest in his
poem by not objecting to a psychiatrist's dissemination of
thousands of copies of the poem to his patients, and by
affirmatively stating that he would not object. The court held
that a "limited distribution, even if not widespread enough to
effect a forfeiture, can, coupled with the requisite intent, cause
an abandonment." Id. at 1249. The court found that the
plaintiff's authorization of the poem's distribution constituted
"strong evidence that the author did not endeavor to protect a
commercial property." Id.
In line with Capitol's waiver/abandonment of rights,
EMI's own restorations of the original recordings distributed in
the United States claim copyright solely in the restored versions
of the performances and not in the underlying sound recordings.
(Heymann Decl. ¶ 11.) The "reservation of rights" language relied
upon by Capitol to dispute this claim refers only to EMI's
restorations of the original recordings and not to the underlying
recordings. (McMullan Decl. ¶ 15.)
Furthermore, Capitol has failed to pursue the many other
companies presently selling restorations of the original recordings
without any authority from Capitol. (Heymann Decl. I ¶ 14, Ex. D.)
Capitol does not deny the existence of this third party conduct and
responds that it is now investigating it. (Pl.'s Mem. at 15.)
Capitol's lax practices are consistent with EMI's disclaimer of any
intellectual property rights in any sound recordings made prior to
1957 and which are more than fifty years old. (Warren Decl. ¶¶ 4-
10.) The Second Circuit has further held that a defendant's
innocence and justifiable reliance on a plaintiff's failure to
prevent previous copyright infringement can lead to latches,
barring the assertion of copyright claims. Saratoga Vichy Spring
Co., Inc. v. Lehman, 625 F.2d 1037, 1041-42 (2d Cir. 1980).
The cases cited by Capitol are inapposite here. New York
World's Fair 1964-1965 Corp. v. Colourpicture Publishers, Inc, 1964
WL 8151 (N.Y. Sup. Ct. June 10, 1964), aff'd, 251 N.Y.S.2d 885 (2d
Dep't 1964), involved ongoing and "enormous expenditures of time,
effort, money and skill" in a time-sensitive situation, and there
was no claim, as here, that plaintiff failed to police rampant
third party infringement. Id. at 942. Sweetheart Plastics, Inc.
v. Detroit Forming, Inc., 743 F.2d 1039 (4th Cir. 1984) involved
the Lanham Act and concerned estoppel by acquiescence, as opposed
to abandonment. Id. at 1046. Hoover Co. v. Western Vacuum Bag
Mfg., Inc., No. 63 Civ. 3566, 1964 WL 8146 (S.D.N.Y. May 11, 1964)
is also irrelevant because it is a trademark case where defendant
sought justification for its "unfair emphasis" on the "Hoover
mark." Here, in contrast, the third parties in question operate
under the good faith belief, like Naxos, that the works at issue
are in the public domain.
Capitol's cases that are more on point support a finding
of waiver and abandonment. Unlike in the Penguin Books case, here
there is an "overt act by Plaintiff evidencing an intent to
surrender the copyright" both with regards to the Yale policy and
EMI's own reservation of rights. Penguin Books, WL 1028634, at
*20. Furthermore, this is not a case where "an occasional
infringement slips through a copyright holder's surveillance" and
the plaintiff "has expended substantial resources in enforcing its
copyrights." Paramount Pictures, 11 F. Supp.2d at 337.
Finally, it is unclear from the documentation of royalty
payments, the length of time in which royalties were paid, or if
they were consistently paid. Naxos claims that it is ambiguous as
to whether the Menuhin and Fischer agreements remain in force since
royalties were only to be paid during the life of the performer.
3. Naxos Has Not Competed Unfairly
Since Capitol has no rights in the original recordings,
it cannot charge Naxos with unfair competition. As both parties
agree, unauthorized copying without more is not actionable.
(Def.'s Mem. at 16; Pl.'s Opp. Mem. at 18.) See Leonard Storch
Enters., Inc. v. Mergenthaler, No. 78-C-238, 1980 WL 1175, at *30
(E.D.N.Y. Aug. 8, 1980) ("[N]o New York case has ever recognized
a right of unfair competition based solely on the copying or
photocopying of a tangible product."), aff'd, 659 F.2d 1060 (2d
A plaintiff only has a viable claim where it also has
exclusive, cognizable rights to the property it seeks to prevent
from copying. E.g.,Hebrew Publ'g Co. v. Scharfstein, 288 N.Y. 374,
376-77 (1942) (holding that "without more," for defendant to copy
books published by plaintiff, which were not covered by copyright,
and then sell these copies does not state a claim for unfair
competition); G. Ricordi & Co. v. Haendler, 194 F.2d 914, 915-16
(2d Cir. 1952) (holding that defendant is not entitled to a
preliminary injunction where defendant photocopied and then sold
plaintiff's book after its copyright expired); Mastro Plastics
Corp. v. Emenee Indus., Inc., 228 N.Y.S.2d 514 (1st Dep't 1962)
(finding no action for unfair competition where plaintiff held no
patent in the design of drums it had manufactured, and defendant
resold the drums with plaintiff's trademark replaced by its own).
Without a copyright or legal recognition, "a man's property is
limited to the chattels which embody his invention," and "[o]thers
may imitate these at their pleasure" and even resell them as their
own. Id. at 516. Thus, it is not enough for Capitol to allege
that Naxos copied and restored the original recordings without
authorization, but Capitol must first show that it has a legally
protected interest in these recordings.
Furthermore, the cases cited by Capitol, where a state
common law violation was found, are distinguishable from the
present case. In its holding in Funotopia, the court explained,
"where a product is placed upon the market, under advertisement and
statement that the substitute or imitating product is a duplicate
of the original, and where the commercial value of the imitation
lies in the fact that it takes advantage of and appropriates to
itself the commercial qualities, reputation, and salable properties
of the original, equity should grant relief." 171 F.951, 964
This is different from what Naxos did here. Naxos never
falsely advertised its restored product as a "duplicate" of the
original, and it did not take advantage of the "commercial
qualities" and "salable properties" of the original. Rather, as
Naxos points out, the original recordings are not even salable
because time-worn shellacs are marred by numerous sound
imperfections, and the types of machines which can extract sound
from sound shellacs became obsolete many years ago and are
unavailable to the majority of consumers. Thus, Naxos needed to
employ significant effort to create an entirely new and
commercially viable product. (Obert-Thorn Decl. ¶ 19 ("What the
transfer engineer does is a value-added process which takes the raw
material or the original recording and uses skill, technology and
taste in order to make it into a new and unique product.").)
Likewise, in Apple Corps and Metropolitan Opera, the
court was primarily concerned with a defendant "endeavoring to reap
where it has not sown." Metropolitan Opera, 101 N.Y.S.2d at 490.
Apple Corps recognized record piracy, a form of unfair competition,
"[w]here the apparent purpose is to reap where one has not sown, or
to gather where one has not planted, or to build upon, or profit
from, the name, reputation, good will or work of another." 476
N.Y.S.2d at 719. Again, this is not the case here. As Naxos' raw
materials, the shellacs, were commercially unsalable, its actions
cannot be characterized as "unauthorized interference . . . at
precisely the point where the profit is to be reaped." Metropolitan
Opera, 101 N.Y.S.2d at 490. Furthermore, Naxos did not "profit
from the labor, skill, expenditures, name and reputation of
others," but rather created and marketed a new product relying on
its own labor, skill, and reputation. Id. at 492.
Unlike in the instant case, the recordings in Capitol
Records, Artista, and Firma Melodiya all purported to be identical
reproductions of the original. In Capitol Records, defendants sold
a record, containing (or at least attempting to) "identical
reproductions of certain phonograph records being sold by
plaintiff," and they "pressed the records just as if it was the
bona fide product of the plaintiff." Capitol Records, Inc. v.
Greatest Records, Inc., 252 N.Y.S.2d 553, 554, 555 (1964). There
is thus an element of fraud and deception present, which is
significantly absent with Naxos' restorations. In Artista, at
issue was Internet cite providing users with links to pirated
copies of the record companies' copyrighted musical recordings.
This site neither offered nor claimed to offer improvements on the
original recordings. In Firma Melodya, defendants did "not deny
they are distributing copies of Melodiya's master recordings," but
rather claimed a right to do this on the basis of a forged
addendum. 882 F. Supp. at 1316. In this way, the defendants did
not even argue they were producing and selling a new product, but
rather claimed a right to plaintiff's product on the basis of an
The Fame Publ'g Case, which discusses the elements of
tape piracy for recordings protected by the federal Copyright Act,
stresses the identical nature of the recording and the lack of
effort expended by the copier. No value is added by the copier,
and "[t]he end product . . . is not only <similar' but virtually
indistinguishable." Fame Publ'g Co. v. Alabama Custom Tape, Inc.,
507 F.2d 667, 669-70 (5th Cir. 1975). Furthermore, "[w]hile most
record producers face substantial risks and expenses, never knowing
whether their efforts will succeed, [tape pirates] encounter no
such problems; they buy their hits for a song." Id. at 668. Here,
Naxos was not simply "duplicating a sound recording of a
performance," and it did not purchase its "hits for a song." Id.
at 669, 668. Rather, Naxos invested time, energy, money, and
creativity in obtaining the original shellacs and making the
restorations. (Obert-Thorn Decl. ¶¶ 8-10; Ledin Decl. ¶¶ 1-21;
Marston Decl. ¶¶ 6-9.)
The quality and nature of the restorations stand as
evidence to the fact that Naxos did not aim to simply duplicate the
original recordings and capitalize on Capitol's efforts. Instead,
Naxos worked to create a new product with superior sound. (Heymann
Decl. ¶¶ 12-13; Obert-Thorn Decl. ¶¶ 21-22; Ledin Decl. ¶¶ 23;
Marston Decl. ¶¶ 10 (testifying to the superiority of the restorations
that have been extraordinarily well-received by classical
music critics).) This is very different from the inferior copies
at issue in the cases Capitol cites. E.g., Metropolitan Opera, 101
N.Y.S.2d at 487 ("The quality of [the defendants'] recordings is
inferior to that of Columbia Records and is so low that Metropolitan
Opera would not have approved the sale and release of such
records to the general public."); Capitol Records, 252 N.Y.S.2d at
555 (describing a loss of "public good will" "because of the fact
that the product turned out by defendants is inferior to that
produced by [plaintiff]."); Apple Corps., 476 N.Y.S.2d at 719
(referring to the Beatles' "right to prevent recordings of inferior
quality . . . from being commercially distributed").
The tape piracy decisions further are grounded in public
policy considerations inapplicable here. In the Metropolitan Opera
case, for instance, the Court was motivated by concern with the
"fostering and encouragement of fine performances of grand opera,
and their preservation and dissemination to wide audiences," 101
N.Y.S.2d at 497, and with protecting against the "invasion of the
moral standards of the market place." Id. at 500. In contrast
with the duplicates in Metropolitan Opera, the Naxos restorations
would not discourage, but rather encourage "the preservation and
dissemination" of "fine performances." As the musicians in the
subject performances, the public's interest in ensuring that
artists have ample incentive for performance is not implicated.
Naxos did not produce a cheap knock-off of Capitol's recordings
that would undercut and discourage Capitol's investment. Rather,
Capitol is free to work on its own restorations and place them on
the market in competition with those of Naxos. In fact, it is even
possible that Naxos' restorations have revived the relevant market
in historic classical performances to Capitol's benefit. (Def.'s
Opp. Mem. at 24.) Thus, the Naxos restorations help ensure that
quality historic performances are commercially available for the
present generation and well-preserved for the next. A February 3,
2002 article in The Chicago Tribune went so far as to conclude,
"The great salvation for classical recording continues to lie with
the smaller independent labels . . [e]nterprising indies such as .
. . Naxos . . . continue to put out records that justify themselves
artistically." (Def's Mem. at 11.)
Moreover, Naxos lacks the bad faith necessary in a common
law unfair competition claim. As explained in Saratoga Vichy
Spring Co., Inc. v. Lehman, "[c]entral [to an unfair competition
claim] is some element of bad faith." 625 F.2d 1037, 1044 (2d Cir.
1980). In this case, the court denied plaintiff's unfair competition
claim since it could not show that defendant was "attempting
to capitalize on [its] efforts" and defendant's misappropriation of
its "labors and expenditures." Id. See also Eagle Comtronics,
Inc. v. Pico Products, Inc., 682 N.Y.S.2d 505, 506 (4th Dep't 1998)
("Under Federal or State law, the gravamen of a claim of unfair
competition is the bad faith misappropriation of a commercial
advantage belonging to another by infringement or dilution of a
trademark or trade name or by exploitation of proprietary information
or trade secrets."); Computer Assocs.Int'l, Inc. v. Computer
Automation, Inc., 678 F. Supp. 424, 429 (S.D.N.Y. 1987) ("The
essence of [an unfair competition claim] is the bad faith
misappropriation of the labors and expenditures of another, likely
to cause confusion or to deceive purchasers as to the origin of
goods."). Even with the extension of the doctrine of unfair
competition to apply to misrepresentation, or "the selling of
another's goods as one's own, as well as misappropriation, or "the
palming off of one's goods as those of a rival trader," Naxos lacks
the requisite bad faith. It neither attempted to sell its records
as Capitol's, nor sell Capitol's records as its own. It did not
misappropriate Capitol's labor and expenditures, but rather sought
to profit from its own efforts and ingenuity.
II. THE MENUHIN/BRUCH CLAIMS ARE NOT TIME-BARRED
The Menuhin/ Bruch claims are not barred by the threeyear
statute of limitations for a claim of unfair competition based
on misappropriation. E.g., Sporn v. MCA Records, Inc., 451
N.Y.S.2d 750 (1st Dep't 1982). It is true that Naxos commenced the
distribution of the Menuhin Performances on October 1, 1999, and
Capitol amended its complaint to include the Menuhin/Bruch
performance on October 1, 1999. However, the Menuhin/Bruch claims
relate back to the commencement of this action pursuant to Federal
Rule of Civil Procedure 15(c). Under this rule, "[a]n amendment of
a pleading relates back to the date of the original pleading when
. . . the claim . . . asserted in the amended pleading arose out of
the conduct, transaction, or occurrence set forth or attempted to
be set forth in the original pleading." Fed. R. Civ. P. 15(c).
Relation back is liberally allowed, and the test is whether the
facts alleged in the original complaint give sufficient notice of
the conduct and transactions underlying the amendment to avoid
unfair and prejudicial surprise to the defendant. O'Hara v. Weeks
Marine, Inc., 294 F.3d 55, 68-70 (2d Cir. 2002); Stevelman v. Alias
Research Inc., 174 F.3d 79, 86-87 (2d Cir. 1999).
This test is met here. The Menuhin/Bruch claims arise
out of the same transactions and occurrences that underlie
Capitol's original Complaint. Naxos sold the Menuhin/Bruch
recording on the same compact disc as the Menuhin/Elgar recording,
and the original complaint put Naxos on notice as to Capitol's
claims with regards to Menuhin recordings from this period. The
amendment thus resulted in no unfair surprise to Naxos.
Summary judgment is granted in Naxos' favor, and Capitol
is granted leave to submit any additional factual material within
twenty (20) days or within such time as counsel may agree or the
Court determine upon application.
In default of any additional submissions, submit judgment
It is so ordered.
New York, NY _________________________
May 6, 2003 ROBERT W. SWEET