Leadsinger, Inc. v. BMG Music Publishing

Citation: Not availableDocket: 06-55102

Court: Court of Appeals for the Ninth Circuit; January 1, 2008; Federal Appellate Court

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Leadsinger, Inc., a manufacturer of karaoke devices, filed a complaint for declaratory judgment against music publishers BMG Music Publishing and Zomba Enterprises, Inc., concerning the applicability of the Copyright Act to its operations. Leadsinger sought a declaration that it can print or display song lyrics in real-time alongside musical recordings, relying solely on the compulsory mechanical licenses obtained under 17 U.S.C. § 115, or alternatively, under the fair use doctrine per 17 U.S.C. § 107. The district court dismissed the complaint without leave to amend, citing failure to state a claim. The Ninth Circuit affirmed this decision.

The case notably addresses the intersection of copyright law and karaoke technology, highlighting that karaoke devices rely on both musical compositions and lyrics, which are protected by copyright. BMG, which holds rights to these works and issues licenses through the Harry Fox Agency, had granted Leadsinger compulsory licenses but also demanded additional fees for lyric reprints and synchronization. Leadsinger contested the necessity of these additional fees, arguing that its karaoke device—which integrates a microphone and displays lyrics on a connected television—should qualify under the existing licenses. The device also occasionally includes printed lyrics and licensed images as backgrounds during performance.

Leadsinger's complaint asserts that the printed and displayed song lyrics are intended to help customers read and sing along with the music, also allowing parents to manage children's exposure to lyrical content. The district court ruled that a Section 115 compulsory license does not permit Leadsinger to display lyrics and visual images in real-time alongside music, and found that Leadsinger's claims did not substantiate a fair use defense. Consequently, the court dismissed the complaint without allowing for amendments, deeming further attempts futile. 

In reviewing the dismissal, the appellate court applies a de novo standard, affirming that dismissal for failure to state a claim is warranted only if it is clear that no facts could support the non-moving party's claims. The court recognizes its jurisdiction under 28 U.S.C. § 1291. The Copyright Act's provisions relevant to this case include Section 102, which protects various forms of original works like literary and musical works, and Section 106, which grants copyright owners exclusive rights to reproduce and distribute their works. However, Section 115 limits these rights regarding phonorecords, which do not include audiovisual works. Therefore, the compulsory licensing scheme in Section 115 is inapplicable to audiovisual content.

The Copyright Act defines audiovisual works as a series of related images intended for presentation using devices like projectors or electronic equipment, accompanied by sounds, regardless of the material form (e.g., films, tapes). Although not explicitly stated in the Act, courts have established that copyright holders have the right to control the synchronization of musical compositions with audiovisual content, necessitating synchronization licenses for their use in timed relation with such works. The Act also defines literary works as those expressed in verbal or numerical symbols, including song lyrics, which are copyrightable as literary works receiving separate protection.

In Leadsinger, Inc. v. BMG Music Publishing, the district court determined that Leadsinger could not claim a compulsory license to display song lyrics in real-time with recordings, agreeing that Leadsinger's device does not qualify as a phonorecord because it contains more than just sound. Phonorecords are defined as material objects in which sounds, excluding those accompanying audiovisual works, are fixed. Although Leadsinger's device stores both visual images and sounds, it meets the statutory definition of audiovisual works and therefore cannot be classified as a phonorecord under the compulsory licensing provisions.

The definition of audiovisual works under Section 101 of the Copyright Act includes works that consist of "a series of related images" intended for machine display. Leadsinger's karaoke device projects song lyrics sequentially on a screen, meeting this definition despite its claim that the images are unrelated. The purpose of karaoke is to enable users to sing lyrics in real time with the music, necessitating the sequential presentation of the lyrics. The fact that the lyrics are literary works does not preclude the device from being classified as an audiovisual work, as the categories are not mutually exclusive. Section 101 does not mandate sound for audiovisual works, but Leadsinger's device functions by projecting lyrics in sync with music, reinforcing its status as an audiovisual work. This conclusion is supported by the Second Circuit's ruling in ABKCO Music, which categorized a similar karaoke device as an audiovisual work. Furthermore, Leadsinger is not entitled to a declaration that compulsory mechanical licenses under Section 115 permit it to reprint lyrics in accompanying booklets. Lyrics are copyrightable as literary works, and Section 115 only pertains to the making and distribution of phonorecords, not the reproduction of lyrics on paper. Therefore, Leadsinger must obtain synchronization licenses in addition to any necessary compulsory and reprint licenses for its karaoke products.

Leadsinger claims it can publish copyrighted song lyrics under the fair use doctrine, regardless of the compulsory licensing scheme. However, the court agrees with the district court's finding that Leadsinger's allegations do not support a fair use claim. The Copyright Act allows for fair use under specific purposes such as criticism, news reporting, or teaching, as outlined in Section 107. Fair use is assessed based on four factors: (1) the purpose and character of the use, (2) the nature of the copyrighted work, (3) the amount used, and (4) the effect on the market value of the work. This analysis is flexible and should be conducted on a case-by-case basis, considering the overarching goal of copyright law to foster creativity and new works. Fair use can be resolved on summary judgment if no material facts are disputed, and the district court appropriately addressed the fair use issue at the motion to dismiss stage. Leadsinger's claims, presumed true, fail to establish fair use, as it does not allege that its use of BMG's copyrighted lyrics serves a qualifying purpose under Section 107. Although Leadsinger suggested karaoke could teach singing, this argument was not included in its complaint, and the court found no reasonable basis to infer that teaching was the primary purpose of its use.

Leadsinger's allegations primarily indicate a commercial use of copyrighted lyrics rather than a transformative one, which is essential for fair use under factor one of Section 107. The complaint fails to demonstrate that Leadsinger's use adds new expression, meaning, or message to the original lyrics, as it merely facilitates sing-along without altering the lyrics themselves. Although Leadsinger claims its use aids in understanding lyrics and assists parental control over objectionable content, these factors do not impact the fair use analysis, which focuses on the vendor's profit motive. The commercial nature of Leadsinger's karaoke device, intended for profit, is underscored, with commercial use being presumptively unfair exploitation of copyright. Previous case law, including Zomba Enterprises, supports that karaoke use of copyrighted music does not qualify as fair use. 

The second factor, concerning the nature of the copyrighted work, favors BMG because song lyrics are creative expressions protected by copyright. The third factor also weighs against fair use, as Leadsinger's complaint suggests it uses the entire copyrighted lyrics, which is detrimental to a fair use finding, as seen in prior rulings where copying whole works is typically considered unfair. No indication exists that Leadsinger limits its use to portions of the lyrics, reinforcing the assumption of entire usage.

Leadsinger's appeal focuses on the fourth fair use factor regarding the impact of its device on the potential market for copyrighted song lyrics. The district court found that Leadsinger's allegations were insufficient to assess market effects. Specifically, Leadsinger argued that no market exists for standalone song lyrics, but failed to provide this assertion in its complaint. While it noted that music publishers rarely required print licenses for non-karaoke uses, it acknowledged that they do charge fees for karaoke lyric use. The court deemed it unreasonable to infer that allowing reprints in one context (non-karaoke) would not harm the market in another (karaoke). Consequently, the district court determined that Leadsinger did not adequately demonstrate the market impact of its device.

Additionally, Leadsinger's intended commercial use of the lyrics led to a presumption of potential market harm, consistent with precedent. Despite strong indications in favor of market harm, the court affirmed the dismissal of Leadsinger's fair use claim based on these findings.

Regarding the denial of leave to amend, the district court's decision was reviewed for abuse of discretion. Although amendments are typically permitted, they may be denied for reasons like undue delay or futility. The district court denied leave to amend, citing futility, which is an accepted basis for such a denial. After reviewing the case de novo, it was concluded that no amendments could salvage Leadsinger's complaint, affirming the district court's dismissal.

Leadsinger's karaoke device qualifies as an audiovisual work, falling outside the compulsory licensing framework of 17 U.S.C. § 115. Leadsinger's description of its microphone, which allows users to sing along with recorded music in real time, supports this classification. Any potential amendment concerning Leadsinger's fair use claim would be ineffective because its use of copyrighted song lyrics is commercial, the lyrics are central to copyright protection, and Leadsinger likely uses them in full. While there could be discussions about the fourth fair use factor regarding market harm, the first three factors decisively oppose a fair use finding, and these factors must be considered collectively. Additionally, the district court has discretion in handling declaratory judgment actions, including the authority to dismiss them without trial. The Declaratory Judgment Act grants federal courts the ability to declare rights but does not require them to do so, allowing the district court to dismiss Leadsinger's complaint without leave to amend. Consequently, the dismissal of Leadsinger's complaint is affirmed.