Karaoke Producer Cannot Sue Competitors Over Licenses

Thursday, February 28, 2008

Page 1

Karaoke Producer Cannot Sue Competitors Over Licenses—Court

By KENNETH OFGANG, Staff Writer

A producer of karaoke records cannot sue competitors whom it claims are infringing copyrights, because the producer is not the owner of the copyrights, the Ninth U.S. Circuit Court of Appeals ruled yesterday.

A party which lacks standing to bring a Copyright Act infringement claim, Judge Milan D. Smith wrote, cannot sue under the Lanham Act, the Racketeer Influenced and Corrupt Organizations Act, or state unfair competition laws if the success of the claim is dependent on proof of copyright infringement.

The ruling affirms an order by U.S. District Judge John F. Walter of the Central District of California, who dismissed a suit by Sybersound Records, Inc. against several competitors, including the parent companies of Karaoke Party, Keynote Karaoke, and The Singing Machine.

Sybersound and its competitors produce and sell karaoke records, primarily to distributors and retailers—including Wal-Mart, Kmart, Best Buy, Toys “R” Us, and Fry’s Electronics—for resale to the public. Sybersound claimed that the defendants were competing unfairly because they falsely represented to those customers, and to the public, that they had obtained licenses for the use of all the copyrighted songs on the records.

In fact, Sybersound claimed, the defendants cut their costs by using unlicensed songs and thus avoiding the need to pay royalties and licensing fees. Sybersound also accused some of the defendants of falsely impugning the plaintiff by claiming that it too used unlicensed material.

Walter ruled that the complaint failed to state a claim, and the appellate panel agreed.

Smith rejected Sybersound’s contention that had standing to sue for copyright infringement with respect to nine songs as to which TVT Music Publishing, a co-owner of the copyrights in the songs, had assigned its rights with respect to karaoke use to Sybersound.

The argument was flawed, the appellate jurist explained, because a co-owner of a copyright cannot grant an exclusive right or license without the approval of the other co-owners.

While the Copyright Act of 1976 amended prior law by allowing copyright owners to divide their rights, for example by granting a right to perform the copyrighted work publicly without the right to reproduce the work in copies or recordings, there is nothing in the act which suggests that a co-owner may grant such rights without the consent of the others, Smith explained.

“If TVT were the sole copyright owner of the nine referenced songs and had transferred an exclusive karaoke-use interest to Sybersound (assuming such a divisible interest exists), Sybersound would have had standing as the exclusive licensee to sue the Corporation Defendants for infringement,” the judge wrote. “However, even if a karaoke-use is a properly divisible interest in a copyright, TVT is not the exclusive owner of the karaoke use interest in the copyright,” he added, taking judicial notice that several other companies held ownership in the copyright.

Smith also rejected the argument that Sybersound could assert RICO Act standing as a competitor injured by the predicate acts of the defendant corporations’ executives in infringing the copyrights and committing related fraud. The court, Smith reasoned, would be forced to speculate in order “to determine what percentage of Sybersound’s decreased sales, if any, were attributable to the Corporation Defendants’ decision to lower their prices or a Customer’s preference for a competitor’s products over Sybersound’s, instead of to acts of copyright infringement or mail and wire fraud.”

Smith’s opinion was joined by Judge Diarmuid F. O’Scannlain and visiting U.S. District Judge Michael W. Mosman of the District of Oregon.

Peter L. Haviland and Julian Brew of Kaye Scholer LLP in Los Angeles represented Syberspace on appeal. Paul N. Sorrell of Lavely & Singer, Daniel A. Johnson of Sullivan Johnson LLP, and Beverly Hills attorney Robert A. Aronson represented the defendants.

The case is Sybersound Records, Inc. v. UAV Corporation, 06-55221.