May 27, 2015 – The United States District Court for the Central District of California dealt a serious blow to Sirius XM Radio, Inc. – and potentially other digital broadcasters – by certifying a class in a royalties dispute brought on behalf of owners of all pre-1972 recordings played by Sirius since 2009. Because the court had previously found Sirius liable for unpaid royalties, the class certification ruling represents a total win for Flo & Eddie and the other artists and owners.

In this post, I describe the substantive aspects of the court’s ruling, as well as a basic overview of the requirements for certifying the class. In Part Two, I’ll look more closely at some of the unusual procedural aspects of the case and discuss how defendants may avoid pitfalls highlighted by the Flo & Eddie case.

Flo & Eddie, Inc. v. Sirius XM Radio, Inc.: Background

Flo & Eddie, Inc., a corporation controlled by the founding members of ‘60s pop group The Turtles, owns the rights to The Turtles’ master recordings – but has never licensed any radio station to play those recordings. This did not deter Sirius from broadcasting – or, in copyright parlance, from “publicly performing” –The Turtles’ songs, or any other pre-1972 recordings, without paying royalties.

According to Sirius’s filings with the court, it is “the largest radio broadcaster in the United States, measured by revenue, and has over 25.8 million paying subscribers.” It features channels devoted entirely to oldies, such as “50s on 5” and “60s on 6.”

Flo & Eddie filed a class action lawsuit against Sirius on August 1, 2013, seeking to recover damages on behalf of themselves and all other “owners of sound recordings fixed prior to February 15, 1972 … which have been reproduced, performed, distributed, or otherwise exploited by Defendant Sirius XM in California without a license or authorization to do so during the period from August 21, 2009 to the present.”

The cutoff date of February 15, 1972 is significant. Sound recordings made prior to that date are not subject to federal copyright protections. Such recordings are, however, protected by California state laws. (This is why all of Flo & Eddies causes of action arise only under state law, including California Civil Code section 980(a)(2), which recognizes an author’s “exclusive ownership interest” in pre-1972 recordings.)

The court had already found Sirius liable, at least as to Flo & Eddie. In September of last year, the court granted summary judgment in favor of Flo & Eddie, rejecting Sirius’s argument that “the bundle of rights that attaches to copyright ownership of a pre-1972 sound recording does not include the exclusive right to publicly perform the recording.” The court held that, under California law, “copyright ownership of a pre-1972 sound recording includes the exclusive right to publicly perform the recording; therefore if anyone wishes to publicly perform such a recording, they must first seek authorization from the recording’s owner.”

Class Certification Requirements

Under Federal Rule of Civil Procedure 23(a), any party seeking to certify a class must show that: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

The party must also demonstrate that the class is “ascertainable.” (Some courts describe ascertainability as an implied requirement outside the express requirements of Rule 23; other courts consider ascertainability an aspect of the numerosity analysis.) As the Flo & Eddie court explained, “[a]n ascertainable class exists if it can be identified by reference to objective criteria. … A class is sufficiently definite and ascertainable if it is administratively feasible for the court to determine whether a particular individual is a member.”

Finally, under Rule 23(b), where a class seeks primarily monetary damages (rather than injunctive or declaratory relief), the party seeking certification must show that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”

The Class Members Are Happy Together

Flo & Eddie defined its proposed class to include all owners of pre-1972 sound recordings that were broadcast by Sirius, without authorization, on or after August 21, 2009, (3) without authorization. The court held that the members of this proposed class were readily ascertainable and that Flo & Eddie established all the other requirements for class certification.

As for ascertainability, Flo & Eddie persuaded the court that music rights administration services, such as Music Reports, Inc., have compiled “song-by-song ownership database[s] covering virtually all of the commercially significant music in existence” and that such services could assist in identifying the owners of pre-1972 recordings. Further, owners of pre-1972 recordings can (in many cases) reliably self-identify, and many of them have already been exploiting their ownership rights in the recordings. Sirius acknowledged that it possesses a list of all of the pre-1972 songs it played during the relevant time period. Because Sirius did not obtain authorization to play any of those songs (at least, not until after the litigation began), the court would have little difficulty determining who was, and was not, a class member.

Sirius did not dispute that Flo & Eddie satisfied most of the Rule 23(a) requirements – and with good reason. For example, Flo & Eddie identified 273 owners of pre-1972 recordings that Sirius had broadcast during the relevant time period, easily meeting the numerosity requirement. Likewise, the court rejected Sirius’s arguments that individualized questions as to ownership of the recordings and whether the owners authorized Sirius to broadcast them overwhelmed the issues common to the class.

Sirius’s position with respect to adequacy – the one Rule 23(a) factor that Sirius genuinely disputed – overlapped substantially with its arguments concerning predominance under Rule 23(b)(3). “Representation is adequate when the class representative and counsel do not have any conflicts of interest with other class members, and the representative plaintiff and counsel will prosecute the action vigorously on behalf of the class.” The predominance analysis examines “whether proposed classes are sufficiently cohesive to warrant adjudication by representation,” rather than on an individual basis.

Sirius unsuccessfully argued that Flo & Eddie’s proposed model for calculating damages was fatally flawed because : “(1) Flo & Eddie’s choice of damages does not maximize recovery for each class member; (2) the damages model is overinclusive; and (3) there is no uncontroversial method for distributing the damages pot among members.”

The court disagreed, noting that Flo & Eddie’s approach to calculating damages was modeled on Sirius’s own approach to calculating revenue derived from its performances of pre-1972 recordings. That is, “[i]n connection with Sirius XM’s statutory license for post-1972 recordings, Sirius XM calculates, segregates, and then deducts all revenue that it has determined is attributable to its exploitation of pre-1972 recordings – that pre-1972 recording revenue is the measure that Flo & Eddie seeks as damages. As part of the pre-1972 revenue calculation, Sirius XM treats all recordings the same. While popular recordings may be performed more frequently, Sirius considers each performance of all pre-1972 recordings to generate an equal amount of revenue.”

Accordingly, Flo & Eddie proposed that the damages owed to the class should be calculated as Sirius’s gross revenues, multiplied by the percentage of performances of pre-1972 recordings on Sirius’s service, multiplied by the percentage of Sirius’s subscribers located in California. The court found this approach both manageable and fully consistent with Flo & Eddie’s theory of the case.

Now that liability has been found, and a class has been certified, the only question that remains will be how much Sirius will have to pay to resolve the matter. I suspect feverish settlement conversations are in progress.