The End of Oldies? (Or, Why You Might Not Hear Bob Dylan on Internet Radio Until 2067)

Today’s post looks at the intersection of new technology and our somewhat antique laws.  It has recently been reported that major music labels (Sony, Universal, Warner Music, and ABKCO) filed suit against the internet music service Pandora on April 17^th, alleging copyright infringement for essentially “playing old songs without licenses.”  What makes this case most interesting is that these multi-national music industry conglomerates are suing the California-based Pandora in New York State Supreme Court in Manhattan (for those not familiar with our special court-naming preferences in NY, that’s the regular civil trial court).  Without getting into any jurisdictional issues, I wondered why these plaintiffs would sue in state court for what is a predominantly federal cause of action (copyrights).

The answer lies in a strange quirk of history, most clearly articulated by the New York State Court of Appeals (that’s our highest court … I know, it’s confusing), in their answer of certified questions in Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 830 N.E.2d 250 (2005).  Under federal law (17U.S.C. §302) copyrights generally last for the life of the author/creator, plus 70 years.  However, the U.S. Copyright law never squarely addressed musical recordings, which remained unprotected on the federal level until amendments were made to the Copyright Act in 1972.   At the same time, most states had a body of common law rules concerning copyright in creative works (including musical recordings) which were often more expansive than the federal rights, and allowed a nearly unlimited term of protection.  During the drafting of the 1972 amendments to the Copyright Act, the House and Senate reached a compromise regarding protection of pre-1972 musical recordings: existing state common-law copyright protection for them would not be preempted by the new federal statute until February 15, 2067.  See Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 555-56, 830 N.E.2d 250, 260-61 (2005).  Thus, “[p]ursuant to 17 U.S.C. § 301(c), ‘[f]ederal copyright law does not cover sound recordings made prior to [February 15,] 1972. Rather, these recordings are protected by state common law on copyright infringement.’”  Capitol Records, LLC v. Harrison Greenwich, LLC, 652249/2012, 2014 WL 1492299 (N.Y. Sup. Ct. Apr. 14, 2014). 

But don’t federal statutes concerning something usually preclude inconsistent state law?  How can a state like New York say that, under our common law, all music recordings are entitled to permanent, perpetual copyright protection, when the federal law may protect the same recording for as little as 71 years?

Shortly after passage of the Copyright Act amendments, the U.S. Supreme Court addressed these concerns in Goldstein v. California, 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163 (1973). The defendant in that case was convicted of criminal music piracy based on a California copyright law, which he challenged on the grounds that it conflicted with the U.S. Constitution’s “Copyright Clause, the Supremacy Clause and the federal Copyright Act by ‘establish[ing] a state copyright of unlimited duration.’” Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 556-57, 830 N.E.2d 250, 261 (2005) (quoting Goldstein).  The majority on the Court rejected the defendant's arguments, noting that

“[a]lthough the Copyright Clause ... recognizes the potential benefits of a national system, it does not indicate that … state legislation is, in all cases, unnecessary or precluded,” … the states did not relinquish all power to provide copyright protection … the states were free to act with regard to sound recordings precisely because Congress had not, and, in the absence of conflict between federal and state law, the Supremacy Clause was not a barrier to a state's provision of copyright protection to a work not covered under federal copyright law.

Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 556-57, 830 N.E.2d 250, 261 (2005) (quoting Goldstein).  Therefore, turning back to New York, the federal Copyright Act precludes and supercedes New York common-law protection of sound recordings only in two respects.

First, [New York] common law does not apply to any sound recording fixed, within the meaning of the federal act, after February 15, 1972, because recordings made after that date are eligible for federal statutory copyright protection. Second, state common-law copyright protection is no longer perpetual for sound recordings not covered by the federal act (those fixed before February 15, 1972), because the federal act mandates that any state common-law rights will cease on February 15, 2067.  The musical recordings … created before February 15, 1972, are therefore entitled to copyright protection under New York common law until the effective date of federal preemption—February 15, 2067.

Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 559-60, 830 N.E.2d 250, 263 (2005).

Goodnight, Irene

Therefore, if Sony and the other labels want to extract licensing fees from Pandora for the “performance” of pre-1972 musical recordings (or prohibit altogether Pandora’s playing them), it appears that New York’s common law of copyright might be their best shot.  I haven’t had the opportunity to review the actual text of the complaint in this case, but my gut says that Pandora (and those of us who enjoy online listening to anything recorded before Houses of the Holy) might have a problem.  Under New York’s common law, proof of copyright infringement only requires: (1) the existence of a valid copyright; and (2) unauthorized reproduction of the work protected by the copyright. Capitol Records, LLC v. Harrison Greenwich, LLC, 652249/2012, 2014 WL 1492299 (N.Y. Sup. Ct. Apr. 14, 2014).  As recently articulated by the federal Southern District of New York, “[c]ourts have consistently held that the unauthorized duplication of digital music files over the Internet infringes a copyright owner's exclusive right to reproduce.” Capitol Records, LLC v. ReDigi Inc., 934 F.Supp.2d 640, 648 (SDNY 2013).  Additionally, Pandora most likely won’t be able to argue that "unpopular" older music (perhaps some obscure Leadbelly tunes?) are exempt from New York’s protection either: “the ability to enforce copyright protections provided by New York common law is not diminished due to the size of the market and, therefore, the popularity of a product does not affect a state common-law copyright infringement claim.” Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 564, 830 N.E.2d 250, 266 (2005).

It will be interesting to see how this case turns out.  Most likely, I foresee it resulting in an out-of-court settlement involving additional licensing fees on Pandora for use of pre-1972 songs.  But if nothing else, the filing of this suit in New York illustrates the creativity and tenacity of the music industry in monetizing their copyrightable works – via any available legal means.

Understanding the New York Estate Tax Cliff

A number of important tax changes made in passage of the New York State budget last week were highly publicized by the Governor and legislative leaders.  While the estate tax law amendments were not mentioned in the government's press releases (despite earlier indications of their possibility), the State Legislature has made some of the most significant revisions to New York’s estate tax law in decades.

On the positive side of these revisions, Tax Law section 952 was amended to gradually phase-in higher estate tax exclusion amounts.  The amount was previously pegged at $1 million (a relatively low figure when all the different types taxable estate property are considered), but will increase each year starting this year, until January 1, 2019, when it will be $5 million plus the federal cost-of-living-adjustment (COLA).  In essence, New York’s estate tax exclusion will (eventually) be the same as the federal amount, and will increase with inflation.

However, as some news outlets (and the New York State Society of CPAs) have pointed out, there is a down-side to these amendments as well.  In fact, some reports have stated that, for people leaving a taxable estate above the exclusion amount ($2,062,500 until April 1, 2015), their estates will face a “a marginal New York estate tax rate of nearly 164%.”  This sounds like a shocking – even mathematically impossible – figure.  But we must bear in mind that, as they are talking about a marginal tax rate, it is the tax rate for the value of property above the exclusion amount.  This still, of course, means that estate taxes can (and may) eat into the value of the excluded property.  How can this be?

It appears to me that the State Legislature has fundamentally revised some of the basic estate tax presumptions that many of us have worked with for several years.  Primarily, the new, higher monetary thresholds listed in Tax Law section 952(c)(2) are exclusions used to calculate a tax credit rather than exemptions.  Under prior New York law, the $1 million figure represented an exemption from New York estate tax.  If you had an estate less than or equal to $1 million, you paid no tax; but if your estate had a taxable value of $1,000,100, you owed estate tax just on the value of that $100 in excess of the exemption.  Under the Tax Law that took effect April 1, 2014, the entire taxable value of an estate is subject to estate tax.  However, section 952(c) builds in a “credit” against the estate tax - which is the entire amount of the tax for estates with a taxable value less than or equal to the applicable exclusion (i.e. $2,062,500 this year), and a lesser “credit” for estates valued at up to 5% more than that exclusion.  However, “no credit shall be allowed to the estate of any decedent whose New York taxable estate exceeds [105%] of the basic exclusion amount.”

Let’s look at some examples.  Let’s say Bill dies on March 1, 2015 with a taxable estate valued at $2,062,500.  As this is the exclusion amount, his estate receives a credit for the entirety of any estate tax due, and his estate owes $0 of New York estate tax.  In contrast, if Jill dies on March 1, 2015 leaving an estate valued at $2,167,687.50 her heirs might have a problem.  That figure is 5.1% more than the applicable exclusion, and so her estate would owe the applicable estate taxes listed in the table found in section 952(b) of the revised Tax Law.  In this case, that tax would be $106,800 plus 8% of the excess value over $2,100,000 (i.e. $5,415), for a total estate tax burden of $112,215.  Since Jill’s estate is actually only $105,187.50 above the exclusion amount ($2,062,500), her estate is paying a 166% marginal tax on that amount above the exclusion.  But again, we must bear in mind that this exclusion/credit is not an exemption.  This may be why some have begun to refer to this as New York’s estate tax cliff: if you are at or under the exclusion figure, your estate owes nothing (via the credit), but if you are over 5% above the exclusion amount, your estate will be taxed on the full value of the estate at the amount listed in the law.  Nevertheless, the $112,215 estate tax payable by Jill’s estate in this example represents no more than 5% of the actual total value of the estate.

Whether your future estate resembles more Bill’s or Jill’s can depend on many factors.  Thus, with this extremely significant change to New York’s estate tax law, if you want to avoid falling off the Estate Tax Cliff, it would be advisable to review – and revise as need be – your estate plans over the next few years.

A Modern Animal Protection Law Proposed for New York

According to recent reports, New York State Assemblywoman Linda Rosenthal has introduced a "Consolidated Animal Crimes" Bill, to thoroughly modernize New York's animal cruelty / animal protection laws.  By an accident of history, most animal protection laws (and prohibitions on cruelty to animals) are currently housed in New York's Agriculture and Markets Law.  As the name of that portion of our laws implies, sections therein deal mostly with rules and regulations governing livestock, farming, and other agricultural issues.  It is, of course, not the first section one would look to understand the laws prohibiting animal cruelty.

This new bill (Assembly Bill A00775B / Senate Bill S06643) apparently seeks to remedy this by substantially revising parts of the Agriculture and Markets Code, and creating an entirely new Article in the Penal Law (our criminal law): Article 280 - Offenses Against Animals.  Although this bill is still in the Agriculture Committee, should it become law, some of the more interesting developments would be:

1. Second-degree promotion of animal fighting [engaging in the wagers or other peripheral activities of dog fighting, etc.] would be a Class-A Misdemeanor;
2. First-degree promotion of animal fighting [training, breeding, and/or purposefully forcing an animal to fight] would be a Class-D Felony;
3. Second-degree animal cruelty [severe neglect, abandonment, cruel treatment, or poisoning] would be a Class-A Misdemeanor;
4. First-degree animal cruelty [torturing, purposefully wounding, purposefully killing] would be a Class-D Felony;
5. Abuse of an animal involved in racing, breeding, or exhibition of skills [committing second-degree cruelty or tampering with a race horse, racing hound, etc.] would be a Class-E Felony;
6. Third-degree animal abduction ["restraining" a person's pet] would be a Class-B Misdemeanor;
7. Second-degree animal abduction [stealing a person's pet] would be a Class-A Misdemeanor;
8. First-degree animal abduction [stealing a person's pet and demanding ransom, or where the pet is injured or dies] would be a Class-D Felony.

As anyone familiar with criminal law can explain, a crime classified as a felony carries significant consequences.  It is hoped by the sponsors of this bill that the heightened penalties (as well as the reclassification under the Penal Law) will more clearly relate the seriousness of torturing an animal and stealing a person's pet.

I like the sound of this Bill.

Members of law enforcement and animal protection groups have publicly supported this Bill with the reasoning that "putting more specificity in the law would make it that much easier to prosecute people."  While I don't think it should be the province of our state legislature to generally make it "easier to prosecute" people, I do support the re-classification and amendment of our animal protection laws, for a  different reason: it should make the average New York much more aware of (1) their basic legal (if not moral) responsibility to pets and wildlife in our state; and (2) their legal rights if their pet is stolen or harmed by another.  And, of course, the less unnecessary harm caused to animals in our state, the better for all of us.