Court Rules That Only a Single Award of Statutory Damages Is Allowed to Separate Owners of Musical Composition and Sound Recording

In an April 7, 2014 ruling, Judge William H. Pauley III explained his trial ruling “that where two different owners hold respective copyrights in the musical composition and sound recording of the infringed work, they must share a single award of statutory damages.” The Court reasoned that when the defendants “infringed the copyright covering a sound recording and musical composition for the same song, they infringed only one work because the infringement was directed at the sound recording and the musical composition was not exploited.” The Court noted that had the separate owners sued separately, “they may of course collect separately ‘as long as the infringer’s liability on these statutory damages does not exceed the amount provided in Section 504(c)’” of the Copyright Act.

Court Finds Infringements of Copyrights Other Than Copyrights-in-Suit Irrelevant for "Red Flag" Notice

In a January 29, 2014 ruling, Judge William H. Pauley III disposed of nineteen motions in limine in plaintiffs Capitol Records, Inc.’s and other music publishers’ long-running copyright infringement action against MP3tunes, Inc. The Court characterized some of the motions as seeking to “resurrect discovery disputes and legal determinations this Court decided previously. Others level an impressive array of claims and defenses, including perjury, fraud, and witness harassment. Many seek determinations on the merits rather [than] a ruling on the admissibility of evidence.”

Of note are some of the substantive rulings that Judge Pauley made while addressing the evidentiary issues. First, Capitol Records sought to introduce evidence of MP3Tunes’ alleged infringement of copyrights other than copyrights-in-suit as so-called “red flag” or “willful blindness” evidence that would strip the defendant of the safe harbor provisions (for internet service providers) under the Digital Millennium Copyright Act. Relying on the Second Circuit’s controlling decision in Viacom Int’l v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2013), Judge Pauley ruled that “only ‘specific infringements’ that correspond to songs-in-suit are relevant to a determination of liability under a willful blindness or red flag knowledge theory.” The Court added that even “if the evidence were relevant, its probative value would be substantially outweighed by the danger of unfair prejudice to Defendants,” and concluded that “evidence of the infringement of copyrights not owned by Plaintiffs is excluded as to Defendants’ liability.” Judge Pauley further ruled, however, that because “evidence of general infringement is relevant to the issue of willfulness [for the assessment of statutory damages], but irrelevant to infringement liability, this Court will bifurcate liability from willfulness and damages at trial.”

Court Declines to Rescind Copyright Assignments, and Dismisses Infringement Claims

In a January 13, 2014 ruling, Judge William H. Pauley III granted summary judgment in favor of defendants Thomas v. Conigliaro and another defendant dismissing plaintiff Christian McDonald’s copyright infringement and other claims against them. Judge Pauley ruled that McDonald could not rescind his assignment of the copyrights at issue because Conigliaro was a bona fide purchaser, and that McDonald’s rescission claim was time-barred in any event.

McDonald claimed that an interim August 2006 assignment of the copyrights to Reiss had been fraudulently induced, and that the later assignment to Conigliaro was void because Conigliaro “had notice of the alleged fraud.” Judge Pauley noted that “[c]ontracts effecting the sale and license of copyrights are construed ‘according to state law principles of contract interpretation,’” and wrote that under “‘New York law, a recipient of property takes the property free of any equitable interest, such as would give rise to a constructive trust, when the recipient is a bona fide purchaser.’” After considering the evidence of Conigliaro’s knowledge of the alleged fraud urged by McDonald, the Court concluded that “no reasonable jury could find that Conigliaro was on notice of Reiss’s purported fraud,” and ruled that Conigliaro was a bona fide purchaser of the copyrights.

With regard to the statute of limitations issue, Judge Pauley wrote that “McDonald’s claim to the . . . copyrights rests on rescission of the 2006 assignments because Reiss allegedly fraudulently induced them.” The Court ruled that a “‘claim for rescission based on actual fraud is governed by the statute of limitations for claims based on fraud.’” Since McDonald filed the action more than six years after the supposed fraud giving rise to the rescission, the action was, according to the Court, time barred unless it was nevertheless filed within “’two years from the time the plaintiff . . . discovered the fraud, or could with reasonable diligence have discovered it.’” Judge Pauley found that McDonald was aware of the alleged fraud more than two years before filing suit, and held that the rescission claim was time barred.