F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
FEB 14 2005
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
PALLADIUM MUSIC, INC.,
Plaintiff - Appellant -
Cross-Appellee,
v. Nos. 04-6061, 04-6097
EATSLEEPMUSIC, INC., and
TENNESSEE PRODUCTION
CENTER, INC., d/b/a
CHARTBUSTER KARAOKE,
Defendants - Appellees -
Cross-Appellants.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. No. CIV-03-206-A)
Philip O. Watts (Beverley Q. Watts, with him on the briefs), Watts & Watts,
Oklahoma City, OK, for Plaintiff - Appellant - Cross-Appellee.
R. Bradford Brittian, Melinda L. Doss, Raymond E. Stephens, and Morgan L.
Fitch IV, on the briefs, Pitts & Brittian, P.C., Knoxville, TN, for Defendants -
Appellees - Cross-Appellants.
Before SEYMOUR , and HOLLOWAY , and BRISCOE, Circuit Judges.
BRISCOE , Circuit Judge.
Plaintiff, Palladium Music, Inc., (Palladium) appeals the district court’s
grant of summary judgment in favor of defendants, EatSleepMusic Inc., (ESM)
and Tennessee Production Center, Inc., d/b/a Chartbuster Karaoke (TPC) in a
copyright infringement action brought pursuant to 28 U.S.C. § 1338(a). ESM and
TPC cross-appeal the district court’s denial of their motion for attorneys fees,
requested under 17 U.S.C. § 505. This court has jurisdiction pursuant to 28
U.S.C. § 1291, and affirms.
I.
Since 1996, Palladium has been in the business of producing original
master sound recordings of popular hits, commonly referred to as “karaoke music
tracks.” The tracks are designed to allow consumers of the music to sing along
with their favorite songs. Palladium hires musicians and technicians to record
music made popular by other artists. The recordings it produces sound similar to
the original artist and are produced “in the style” of that artist. Palladium does
not, however, incorporate any previously recorded sound components in its
production and it does not attempt to change in any way the original musical
compositions it uses. The final product is an original sound recording of a
previously copyrighted musical composition. For example, Palladium’s sound
2
recording number PE2391 is entitled “. . . Baby One More Time” and is
Palladium’s re-recorded version of the song by the same title made popular by
Britney Spears.
It is undisputed that from 1996–1999 Palladium produced its sound
recordings without licensing from the copyright owners of the underlying musical
works. 1 It sold its sound recordings to third-party manufacturers, like defendant
TPC, who then combined the sound recordings with synchronized lyrics to
produce private label karaoke products such as “Compact Disc plus Graphics”
(CD+G), Digital Video Discs (DVD), Video Compact Discs (VCD) and Cassette
Tapes. These products were then sold to consumers in the retail market.
In 1999, Palladium decided to launch its first retail product line by offering
its sound recordings directly to consumers through digital downloads on the
Internet. It also began the process of filing for copyrights for all of the
recordings it had previously produced since 1996, along with copyrights for all of
its new recordings. Palladium filed bulk registrations as “unpublished
1
There is some dispute as to whether Palladium obtained licensing
agreements from the copyright owners of the musical works in early 2000 for the
purposes of producing sound recordings for its digital online distribution.
However, those sound recordings are apparently not at issue in this case. The
sound recordings at issue here are those Palladium made specifically for sale to
third-party manufacturers like TPC for further distribution in karaoke products.
Palladium stated in its brief, and again at oral argument, that it did not have (or
need) permission from the copyright owners of the musical works to make and
distribute those sound recordings.
3
collections” to offset some of the expense of filing for several thousand works. It
has continuously filed such registrations since receiving its first approved
copyright certificate in 1999.
After launching its first retail line on the Internet in June 2000, Palladium
asked all of its manufacturing customers like TPC to sign licensing contracts in an
attempt to better define approved products and sales channels with regard to
online digital markets. The proposed license would permit the continued
incorporation of Palladium sound recordings into traditional karaoke products, but
would restrict the sale and use of its sound recordings over the Internet. It would
also prohibit any sub-licensing to third parties. Although TPC refused to sign the
proposed licensing agreement, Palladium continued to sell its recordings to TPC.
In November 2002, Palladium discovered that defendant ESM was
delivering Palladium’s sound recordings through ESM’s online digital delivery
services. Employing embedded digital watermarks, Palladium was able to
determine that the files ESM was distributing online were originally sold to TPC
for its CD+G line of products. Following this discovery, Palladium brought this
action against defendants ESM and TPC alleging copyright infringement for
marketing Palladium’s sound recordings online without a license. 2 Defendants
2
Palladium alleged infringement of copyrights for twenty unpublished
collections, which it had registered with the Copyright Office, as evidenced by
(continued...)
4
moved for summary judgment claiming that Palladium’s copyrights were invalid
and unenforceable because Palladium produced the sound recordings at issue
without the authority of the copyright owners of the underlying musical
compositions. Following the district court’s grant of defendants’ motion for
summary judgment and denial of their motion for attorney’s fees, Palladium
appeals and defendants cross appeal. Only two issues are presented on appeal:
(1) whether Palladium owned valid copyrights for its sound recordings, enabling
it to establish copyright infringement; and (2) whether the district court abused its
discretion in denying an award of attorney’s fees to the defendants, pursuant to 17
U.S.C. § 505.
II.
A. Palladium’s Copyright Infringement Claim
This court reviews a grant of summary judgment de novo with an
examination of the record and all reasonable inferences that might be drawn from
it in the light most favorable to the non-moving party. Garrett v. Hewlett-Packard
Co., 305 F.3d 1210, 1216 (10th Cir. 2002). Under Federal Rule of Civil
2
(...continued)
twenty copyright certificates. The collections identified by the copyright
registration certificates are comprised of more than two thousand individual
sound recordings based upon previously copyrighted musical compositions.
Palladium alleged that TPC and ESM infringed its copyrights by distributing over
five hundred of these individual sound recordings. See Supp. App. at 10.
5
Procedure 56(c), summary judgment is proper “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986). The burden of showing the absence of a genuine issue of
material fact, and an entitlement to judgment as a matter of law is upon the
movant, but a party opposing summary judgment “must do more than simply show
that there is some metaphysical doubt as to the material facts.” Matsushita
Electric Industrial Co. v. Zenith Radio Corporation, 475 U.S. 574, 586 (1986).
Thus, “the plain language of Rule 56(c) mandates the entry of summary judgment,
after adequate time for discovery and upon motion, against a party who fails to
make a showing sufficient to establish the existence of an element essential to
that party’s case, and on which that party will bear the burden of proof at trial.”
Celotex, 477 U.S. at 322.
To establish copyright infringement, a plaintiff must prove (1) ownership of
a valid copyright and (2) unauthorized copying of constituent elements of the
work that are original. See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S.
340, 361 (1991); Jacobsen v. Deseret Book Co., 287 F.3d 936, 942 (10th Cir.
2002). A plaintiff’s presentation of a certificate of registration from the U.S.
Copyright Office usually constitutes prima facie evidence of a valid copyright and
6
of the facts stated in the certificate. 17 U.S.C. § 410(c). Upon presentation of
such a certificate, the defendant bears the burden to overcome the presumption of
validity. Autoskill Inc. v. National Educational Support Systems, Inc., 994 F.2d
1476, 1487 (10th Cir. 1993). To rebut the presumption, however, a defendant
sued for infringement “must simply offer some evidence or proof to dispute or
deny the plaintiff’s prima facie case of infringement.” Entertainment Research
Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1217 (1997).
To prove ownership of a valid copyright, Palladium presented evidence of
twenty certificates of registration obtained for the musical sound recordings it has
produced. 3 Each certificate identifies Palladium as the author and lists no
preexisting works or materials. Nonetheless, defendants argued that Palladium
did not own valid and enforceable copyrights in the sound recordings. To
overcome the presumption of validity created by the certificates, defendants
presented evidence that the sound recordings Palladium had registered are based
upon preexisting musical compositions, 4 and that Palladium had failed to obtain
3
The Copyright Act defines sound recordings as “works that result from
the fixation of a series of musical, spoken, or other sounds, but not including the
sounds accompanying a motion picture or other audiovisiual work, regardless of
the nature of the material objects, such as disks, tapes, or other phonorecords, in
which they are embodied.” 17 U.S.C. § 101. Sound recordings and their
underlying musical compositions are separate works with their own distinct
copyrights. See 17 U.S.C. § 102(a)(2), (7).
4
Section 102(a)(2) of the Copyright Act specifies “musical works,
(continued...)
7
either compulsory or consensual licenses from the copyright owners of those
preexisting musical compositions.
The district court agreed with defendants that Palladium’s sound recordings
are “derivative works” of the underlying musical compositions and that such
derivative works are only protected by the Copyright Act if there is lawful use of
the preexisting material. The district court found that Palladium had failed to
obtain a license from the copyright owners of the underlying musical
compositions as provided in 17 U.S.C. § 115, and thus was not lawfully using the
preexisting material. As a result, the district court concluded Palladium’s
copyrights were therefore invalid and unenforceable.
Palladium contends that the district court erred by concluding its sound
recordings are derivative works of the underlying musical compositions.
Palladium argues it was not required to obtain the compulsory or consensual
licenses for derivative works described in the Copyright Act because its sound
recordings are original recordings, and not derivative of the underlying musical
compositions.
The Copyright Act defines a derivative work as “a work based upon one or
more preexisting works[.]” 17 U.S.C. § 101. Examples of a derivative work
4
(...continued)
including any accompanying words” as among the works of authorship protected
under the Act.
8
provided by the Act include, among others, a “translation,” “musical
arrangement,” and most relevant for our purposes, a “sound recording.” Id.; See
also 2 M. Nimmer, Nimmer on Copyright § 2.10[A] n.8 (“A sound recording is a
derivative work in relation to the musical work recorded therein, just as a motion
picture is a derivative work in relation to the novel or screenplay upon which it is
based.”); Pamiloff v. Giant Records, Inc., 794 F.Supp. 933, 938 (N.D.Cal. 1992)
(quoting Nimmer). A work can generally be copyrighted as a derivative work
only if the new work was produced with the permission of the copyright owner of
the preexisting work or its duly authorized licensee. See 17 U.S.C. § 103(a)
(providing that copyright in a derivative work “does not extend to any part of the
work in which such [pre-existing] material has been used unlawfully”). When the
new work is a sound recording, the Copyright Act provides a mechanism for
lawfully securing the right to record and distribute the preexisting musical
composition through Section 115’s compulsory licensing scheme. See 17 U.S.C.
§ 115. 5
5
17 U.S.C. 115(a)(1) specifically provides:
When phonorecords of a nondramatic musical work have been
distributed to the public in the United States under the authority
of the copyright owner, any other person, including those who
make phonorecords or digital phonorecord deliveries, may, by
complying with the provisions of this section, obtain a
compulsory license to make and distribute phonorecords of the
(continued...)
9
Palladium does not dispute that its sound recordings are “works” as
contemplated by the Copyright Act, nor that they are “based upon” preexisting
works—the underlying musical compositions. In fact, Palladium does not really
address the Act’s definition of derivative works or provide any authority for its
assertion that its recordings are not derivative works, other than to point to one
section in Circular 56 from the U.S. Copyright Office describing the registration
process for “derivative sound recordings.” Circular 56 explains that “[a]
derivative sound recording is one which incorporates some preexisting
sounds—sounds which were previously registered, previously published, or which
were fixed before February 15, 1972.” Circ. 56 at 5. Palladium argues that since
its sound recordings do not incorporate any preexisting sounds, they are entirely
“original” and therefore not “derivative” for the purposes of the Copyright Act.
Palladium either simply misreads Circular 56, 6 or draws from it an
5
(...continued)
work. A person may obtain a compulsory license only if his or her
primary purpose in making phonorecords is to distribute them to
the public for private use, including by means of a digital
phonorecord delivery.
6
We note Palladium’s reliance upon Circular 56 in lieu of citation to the
Copyright Act itself. The circulars provided by the Copyright Office are intended
simply to aid the public in understanding copyright law. See Whelan Associates,
Inc. v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222, 1242 n.38 (3d Cir. 1986)
(“Copyright Office circulars are not technical documents, but are ‘intended to
present simple explanations of the law,’ for lay persons.”). While they certainly
(continued...)
10
unwarranted inference. Nothing in Circular 56 supports the conclusion that only
sound recordings that incorporate some preexisting sounds are “derivative” works
for the purposes of the Copyright Act. 7 Indeed, one example in the circular
explains in unmistakable terms that a party in Palladium’s position must first
“comply[] with permissions and license procedures” before it can obtain a valid
copyright in a sound recording, “derivative” or otherwise, if it is based upon a
preexisting musical composition. Circ. 56 at 3. 8
The Copyright Act provisions that address rights in musical works and the
compulsory licensing scheme for sound recordings of those musical works support
6
(...continued)
may supplement our understanding of what is required for effective registration,
see Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 284–85 (4th Cir. 2003), they are
hardly more binding on statutory interpretation than a plain reading of the
Copyright Act itself, or the Copyright regulations, codified at 37 C.F.R. § 202 et
al. See Whelan, 797 F.2d at 1242 n.38 (refusing to give deference to a circular).
7
C.f., 1 Nimmer § 3.06 (“[A derivative] categorization applies only to the
extent that the pre-existing elements upon which a given derivative or collective
work is based themselves constitute an original work of authorship within the
meaning of Section 102.”). Of course, Palladium does not dispute that the
musical works upon which its sound recordings are based are original works
under the meaning of Section 102, which provides protection for “musical works,
including any accompanying words[.]” 17 U.S.C. § 102(a)(2).
8
In addition, Circular 50, entitled “Copyright Registration for Musical
Compositions,” which Palladium also cites in its brief, provides that “[c]opyright
in a musical work includes the right to make and distribute the first sound
recording. Although others are permitted to make subsequent sound recordings,
they must compensate the copyright owner of the musical work under the
compulsory licensing provision of the law (title 17, United States Code, Section
115).” Circ. 50 at 1 (emphasis added).
11
the conclusion that when producing and selling a sound recording one must secure
a license from the copyright owner of the underlying musical work. Under
Section 106 of the Copyright Act, the owner of a copyright in a work of
authorship generally has the following “exclusive rights”:
(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies or phonorecords of the copyrighted work to the
public by sale or other transfer of ownership, or by rental, lease, or
lending[.]
17 U.S.C. § 106(1)–(3). The copyright laws, however, attempt to strike a balance
between rewarding the creative labor of authors of original works, and promoting
further creativity by allowing public access to their works. See Sony Corp. v.
Universal City Studios, Inc., 464 U.S. 417, 429 (1984). As applied to the present
case, the most relevant example of this balance is the limitation the Act imposes
on the exclusive rights of the copyright owner in an original musical work. That
limitation is set forth in Section 115, which provides that the exclusive rights in
the musical work under Section 106(1) and (3) are subject to “compulsory
licensing” under certain specified conditions. See 17 U.S.C. § 115. 9
Under Section 115, a party intending to make and distribute a sound
recording of a previously published musical work may obtain a compulsory
9
Of course, the copyright owner in the musical work retains the right to
prepare other “derivative works” under § 106(2) such as musical arrangements.
17 U.S.C. § 115(a)(2).
12
license in that work simply by complying with the statutory requirements,
including timely and sufficient notice to the owner of the copyright in the musical
work and payment of statutory, or otherwise negotiated, royalties. 17 U.S.C. §
115(a)(1), (b), (c). Thus, the exclusive rights of copyright owners of previously
published musical works are limited only in that they are required (hence the term
“compulsory”) to license the work to a party who has complied with Section 115.
The concept is simple. In order for a party in Palladium’s position to lawfully use
preexisting, copyrighted musical works to create and sell its sound recordings, it
must first secure the appropriate licensing from the copyright owners of those
musical works. See Bridgeport Music, Inc. v. Dimension Films, 383 F.3d 390,
398 n.7 (6th Cir. 2004) (“Needless to say, in the case of a [sound] recording of a
musical composition the imitator would have to clear with the holder of the
composition copyright.”). By failing to comply with Section 115, Palladium has
illegally used the preexisting material. See 17 U.S.C. § 103(a). As a result,
Palladium’s copyrights in the sound recordings at issue are invalid and
unenforceable.
Palladium also argues, in the alternative, that the licensing scheme provided
by Section 115 does not apply here because Palladium only distributed its sound
recordings on a wholesale basis and not retail or “directly to the public” as
required by § 115(a)(1). See Aplt. Br. at 10. As support for this argument,
13
Palladium relies upon the first sentence of § 115(a)(1), which provides:
When phonorecords of a nondramatic musical work have been
distributed to the public in the United States under the authority
of the copyright owner, any other person, including those who
make phonorecords or digital phonorecord deliveries, may, by
complying with the provisions of this section, obtain a
compulsory license to make and distribute phonorecords of the
work.
(emphasis added). Palladium fails to offer any authority, and we could find none,
for reading a wholesale/retail distinction into § 115(a)(1). More importantly, the
first sentence of § 115(a)(1) refers to public distribution of (a) a nondramatic
musical work, and (b) under the authority of the copyright owner of that musical
work. See also, Peer Int’l Corp. v. Pausa Records, Inc., 909 F.2d at 1332, 1334
n.2 (9th Cir. 1990) (noting that “[o]nce the owner of a copyright in a nondramatic
musical work distributes copies of that work to the public,” others may obtain a
compulsory license under Section 115); 2 Nimmer § 8.04[A] (stating that Section
115’s compulsory license is applicable only to copyright owners of “nondramatic
musical works”). The first sentence, therefore, cannot address Palladium’s
distribution, whether retail or wholesale, of its sound recordings because, as
Palladium admits, it is not a copyright owner of the underlying musical works.
Instead, this language refers to the initial distribution to the public “under the
authority of the copyright owner” which triggers when others may, by complying
with Section 115, obtain a compulsory license to make and distribute the work in
14
question.
Palladium’s sound recordings are derivative works, and its copyrights in the
sound recordings are invalid and unenforceable because it has failed to obtain
compulsory or consensual licenses from the copyright owners of the underlying
musical compositions as required by 17 U.S.C. § 115. Further, Palladium’s
wholesale/retail argument has no application to the “distributed to the public”
reference in § 115(a)(1).
B. Defendants’ Motion for Attorney’s Fees
The defendants appeal the district court’s denial of their motion for
attorneys’ fees under 17 U.S.C. § 505. The Copyright Act authorizes the award of
reasonable attorney’s fees to the prevailing party in a suit under the Act. 17
U.S.C. § 505. This court reviews the district court’s denial of attorney’s fees for
abuse of discretion. Id.; Fogerty v. Fantasy, Inc., 510 U.S. 517, 524 n.11 (1994)
(“[D]istrict courts are to use their discretion in awarding attorney’s fees and costs
to the prevailing party.”). Under the abuse of discretion standard, “a trial court’s
decision will not be disturbed unless the appellate court has a definite and firm
conviction that the lower court made a clear error of judgment or exceeded the
bounds of permissible choice in the circumstances.” McEwen v. City of Norman,
Okl., 926 F.2d 1539, 1553–54 (10th Cir. 1991).
The Supreme Court in Fogerty acknowledged that because fees under
15
Section 505 are to be awarded to prevailing parties only as a matter of the court’s
discretion, “‘[t]here is no precise rule or formula for making these
determinations,’ but instead equitable discretion should be exercised ‘in light of
the considerations we have identified.’” 510 U.S. at 534 (quoting Hensley v.
Eckerhart, 461 U.S. 424, 436–437 (1938)). The Court also suggested several
nonexclusive factors for the district court to consider, including “‘frivolousness,
motivation, objective unreasonableness (both in the factual and the legal
components of the case) and the need in particular circumstances to advance
considerations of compensation and deterrence.’” See 510 U.S. at 534 n.19
(quoting Lieb v. Topstone Industries, Inc., 788 F.2d 151, 156 (1986)). These
“factors may be used to guide courts’ discretion, so long as such factors are
faithful to the purposes of the Copyright Act and are applied to prevailing
plaintiffs and defendants in an evenhanded manner.” Id.
In denying the defendants attorney’s fees, the district court explicitly
considered the nonexclusive Fogerty factors and found in its discretion that while
Palladium’s claims were unsuccessful, it would not award attorney’s fees to the
defendants. The district court also outlined the competing interests furthered by
the Copyright Act and determined that neither would be served by awarding fees
in this case. As such, the district court appropriately considered the applicable
legal standard and the facts of the case. See Ohlander v. Larson, 114 F.3d 1531,
16
1537 (10th Cir.1997) (district court abuses its discretion when it “fails to consider
the applicable legal standard or the facts upon which the exercise of its
discretionary judgment is based”). We cannot conclude that the district court
made a clear error of judgment or exceeded the bounds of permissible choice
under the circumstances.
AFFIRMED.
17