MANHATTAN (LN) — U.S. District Judge Denise Cote on Wednesday rejected a defendant’s argument that the Copyright Act bars state-law contract claims over unpaid royalties for sound recordings, ruling that the breach-of-contract and unjust-enrichment counts survive a motion to dismiss.
Prime Entertainment Group LLC sued 43 North Broadway, LLC, alleging the defendant failed to pay royalties for exploiting sound recordings after acquiring them from non-party Fuel 2000 Records, Inc.
Prime, which acts as a licensing agent for its own catalog and a non-party, Gulf Coast Music LLC, claimed 43 North breached contractual obligations to remit payments for the use of non-exclusive musical masters.
43 North moved to dismiss the First Amended Complaint, arguing that all state-law claims were preempted by the Copyright Act because they sought rights equivalent to those protected under federal law.
Cote agreed that the subject matter of the dispute—sound recordings—fell within the scope of the Copyright Act. However, she found that the claims did not meet the second prong of the preemption test because they contained "extra elements" that made them qualitatively different from copyright infringement.
Prime did not seek to enforce exclusive rights of reproduction or distribution, nor did it dispute 43 North’s right to use the works. Instead, Prime alleged that 43 North voluntarily assumed F2K’s contractual obligations to pay royalties and breached those promises.
"There are several qualitative differences between such a contract claim and a copyright violation claim," Cote wrote, citing Second Circuit precedent, noting that the Copyright Act does not provide an express right to receive payment for use of a copyrighted work.
Unlike a copyright infringement claim, a breach-of-contract claim requires proof of the existence and breach of a promise to pay, which constitutes an extra element that saves the claim from preemption.
The judge also addressed 43 North’s argument that Prime lacked standing to sue on behalf of Gulf Coast Music LLC for royalties related to the GCM Catalog.
Cote dismissed Counts II and IV, which sought damages for the GCM Catalog, ruling that Prime was not the real party in interest. The Sales Agent Agreement between Prime and Gulf Coast allowed Prime to enforce licenses it secured, but the complaint did not allege that Prime brokered the specific license at issue between Gulf Coast and F2K.
Because Prime had over five months to add Gulf Coast as a party and had not done so, Cote found no basis to defer dismissal on prudential standing grounds.
However, Cote allowed Prime’s breach-of-contract and unjust-enrichment claims regarding its own catalog to proceed. She ruled that Prime could enforce the Asset Purchase Agreement it originally entered into with F2K against 43 North, because 43 North expressly assumed F2K’s obligations as its successor in interest.
Federal pleading rules do not require a plaintiff to identify the specific legal theory on which it seeks recovery, Cote wrote, noting that the factual allegations supported a direct enforcement theory even if the complaint labeled the count as a third-party beneficiary claim.
Prime’s attorneys, Alberto J. Soler and Ajoe P. Abraham of Soler Salva LLP, did not immediately return calls for comment.
43 North’s attorney, Lisa A. Ferrari of Cozen O’Connor, did not immediately return calls for comment.