Score Round One for the Duke, the Count and Satchmo–Flo & Eddie pka The Turtles have won a crushing victory over Sirius XM requiring Sirius to license and pay royalties for Flo & Eddie’s recordings published before 1972.  Sirius had taken the position that because the Congress did not expressly include pre-1972 recordings when it established the performance right for sound recordings in 1995, Sirius did not have to pay royalties on pre-72 recordings it used on its service.  This is a position held by Pandora and the Digital Media Association which includes Google among its membership.  More about that later.

The case was brilliantly argued for Flo & Eddie by Henry Gradstein and Harvey Geller, two long time artist advocates (the firm is also representing Aimee Mann in her lawsuit against MediaNet).  The theory is actually very simple, even biblical–thou shalt not steal.  But then I’m an Old Testament kind of guy.

However, the case is based on a complex set of legal principles that need to be mastered and presented just so in order to prevail.  Because Flo & Eddie managed to get back ownership of their masters years ago, they were able to bring the case themselves without any record company involvement.  (After the artists led the way, the major labels also sued Sirius.)  And Gradstein and Geller made a very effective and compelling argument to the Court that resulted in victory, a victory that will be available to artists and copyright owners everywhere seeking to correct the “Pandora loophole.”

Not only will this defeat for Sirius, Pandora and DiMA be encouraging to artists wishing to take action, it also provides what must be a tremendous sense of satisfaction to the sponsors of the RESPECT Act (HR 4772), introduced by Rep. George Holding and Rep. John Conyers.  The cosponsors are a bipartisan group seeking to right the wrong of the Pandora loophole: Reps. Coble, Blackburn, Chu, Cooper, Deutch, Gohmert, Jeffries, Peterson, Rangel, Lowenthal, Collins, Rooney and Fincher.

The Pandora loophole is an effort to justify denying artists their right to satellite radio and webcasting royalties by playing with dates.  Those dates are 1972, 1995 and 1998.  (In Flo and Eddie’s California case, another date was 1982.)  1972 is important because that was the first year that Congress extended the federal copyright law to sound recordings.  Before 1972, sound recordings are governed by state common law, sometimes included statutes as is the case in California that has an extensive state copyright act directly on point as one might expect.  1995 is important because that was the year that Congress established a limited public performance right in sound recordings transmitted digitally (including satellite radio and webcasting) and 1998 is important because that was the year that Congress fleshed out the law that established the compulsory license under Section 114(g), the royalty rate setting and put the finishing touches on establishing SoundExchange.

The Pandora loophole is some version of this argument:  Because state law applies to pre-72 sound recordings and because Congress did not intend to extend the performance right to sound recordings in 1995, pre-72 artists and copyright owners (as well as the non featured singers and musicians) get none of the royalties established in 1998 under the compulsory license.  But here’s the truly weird part:  Sirius rejected the safety of the compulsory license established in 1998 to commercialize the limited performance rights established in 1995 in favor of no license at all under state law.

Yes, that’s right:  Grown men thought this was a good idea.

The case boils down to a very simple concept:  California has a carefully crafted state copyright law that the Court ruled includes the public performance right (and does not exclude it):

The Court finds that copyright ownership of a sound recording under § 980(a)(2) [the California copyright statute] includes the exclusive right to publicly perform that recording. See Cal. Civ. Code § 980(a)(2).  Accordingly, the Court GRANTS summary judgment on copyright infringement in violation of §980(a)(2) in favor of Flo & Eddie.

The point–and one made recently by David Lowery–is that there is no language in either the California state law or in the 1995 amendment to the federal Copyright Law that excludes public performance royalties for pre72 recordings.  So the RESPECT Act can be thought of as almost a technical amendment to fix this Pandora loophole.

Neither Pandora nor Sirius exactly trumpet to their users the fact that these companies are using the pre-72 recordings in multiple channels to their profit–but none of the fees paid by fans ever gets to the artists.  Pandora even misappropriates the artist’s name in the music genome and uses association with artists by name in order to sell their service–and that’s not covered by the compulsory license, either.  (And neither is the derivative work created by the music genome–but that’s another lawsuit.)

So you have to ask yourself–what were they thinking?  Wouldn’t it have been better if Sirius really wanted to stiff old guys and dead cats that they paid the royalties and sought declaratory relief before cutting off America’s musical treasures?

Pandora and Sirius have a chance now to openly reject the bad advice they got (apparently from DiMA) and start paying on pre-72 IMMEDIATELY.  Throw their support behind the RESPECT Act.  Disassociate themselves from DiMA, CCIA, CES or whoever is giving them this horrible advice that it’s worth the downside liability risk and yet more bad PR to “save” a few bucks and stiff Miles Davis, Duke Ellington, Neil Young and so many greats who are responsible for putting American music on the map.

But if past behavior is any prediction of future action, they won’t.  You get into these scrapes by being pig-headed, and you can’t waive a magic wand and make a pig into something else.  You can fire them, however.

And when Wall Street gets a load of the level of liability that these companies have taken on without a care in the world, the reaction will be interesting.

Apparently Pandora’s CFO would like Pandora to be a better partner to artists.  That’s easy.

All he has to do is act like it.

 Register in September.  Vote in November.