Bridgeport Music, Inc. v. Universal Music Group, Inc.

Citations: 440 F. Supp. 2d 342; 2006 U.S. Dist. LEXIS 53680; 2006 WL 2168868Docket: 05 CIV. 6430

Court: District Court, S.D. New York; July 28, 2006; Federal District Court

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Bridgeport Music, Inc. and Southfield Music, Inc. filed a complaint against UMG Recordings, Inc., Napster, Apple Computer, and Yahoo, seeking declaratory judgment, permanent injunctive relief, and damages for copyright infringement. The defendants denied the allegations and counterclaimed against Bridgeport for breach of contract. Bridgeport had previously entered into an agreement with PolyGram Records, granting it ownership of certain music compositions while allowing PolyGram nonexclusive mechanical licenses for future releases. The agreement specified that these licenses did not apply to records released by third parties not affiliated with PolyGram. Plaintiffs allege UMG infringed their copyrights by issuing licenses for digital downloads without authority and argue that the mechanical licenses do not extend to the defendants, as they are not parties to the agreement and digital downloads were not contemplated at the time of the agreement's signing. The defendants counter that Bridgeport represented it had the authority to grant these licenses and is now breaching the agreement by claiming UMG lacks licensing rights. The court granted the plaintiffs' motion to dismiss the counterclaim.

Section 3 of the Agreement contains an indemnification clause requiring Bridgeport to indemnify PRI from all claims and liabilities resulting from breaches of its representations and warranties. Bridgeport argues in its motion to dismiss that it has not breached any terms of the Agreement, UMG has not adequately alleged a breach, and UMG lacks standing to pursue the breach of contract claim. For a counterclaim to survive dismissal under Rule 12(b)(6), it must be shown that the non-movant can prove facts supporting their claim. The court must accept well-pleaded facts as true and draw reasonable inferences in favor of the non-movant, but it is not required to accept conclusory allegations. The court can review documents integral to the counterclaim without converting the motion into one for summary judgment. 

To establish a breach of contract under New York law, UMG must demonstrate the existence of a valid contract, performance by one party, breach by the other, and resulting damages. UMG contends that Bridgeport's digital sales of copyrighted recordings are equivalent to traditional sales covered by mechanical licenses in the Agreement. UMG claims that Bridgeport breached its representations and warranties by asserting that digital distribution is not covered under the Agreement. The core issue revolves around the extent of the mechanical licenses and whether they encompass digital downloads. Even if UMG prevails on the interpretation of the licenses, Bridgeport's actions in bringing a copyright infringement lawsuit may not constitute a breach of contract if based on a good faith argument.

UMG holds an enforceable contract for mechanical licenses that includes digital download activities. The filing of a copyright infringement action does not constitute a breach of contract, as a counterclaim asserting the filing as a breach would undermine contract enforcement principles. Differing interpretations of contractual terms do not justify a breach claim, especially since the Agreement lacks a covenant not to sue, which New York courts view unfavorably and require clear language to enforce. UMG's reliance on an indemnification clause for relief is also unfounded; the clause holds Bridgeport liable for breaches related to its warranties. Bridgeport warranted it was the sole owner of the rights granted, and the assertion that the mechanical licenses did not cover certain uses does not negate this warranty. Therefore, even if UMG's claims were resolved in its favor, it would not succeed on the breach of contract claim. The court granted the motion to dismiss UMG's counterclaim and directed the parties to propose a Case Management Plan within twenty days. The document notes an error in naming Universal Music Group, Inc. as a defendant and clarifies that the Agreement lacks provisions for negotiated dispute resolution, negating claims of Bridgeport’s noncompliance.