Capitol Records, Inc. v. Erickson

In the Compco case (decided on the same day as the Sears case), Compco manufactured a fluorescent lighting fixture which was substantially identical to a fixture manufactured by Day-Brite. Day-Brite’s fixture was not patentable under federal law. The trial court found that there was confusion as to the source of the fixtures (Illinois law) and that Compco was guilty of unfair competition. The Supreme Court held that the order (restraining Compco from selling its fixtures, etc.) was “in conflict with the federal patent laws.” It was also said (p. 238 [11 L.Ed.2d at p. 672]): “As we have said in Sears, while the federal patent laws prevent a State from prohibiting the copying and selling of unpatented articles, they do not stand in the way of state law, statutory or decisional, which requires those who make and sell copies to take precautions to identify their products as their own. A State of course has power to impose liability upon those who, knowing that the public is relying upon an original manufacturer’s reputation for quality and integrity, deceive the public by palming off their copies as the original.”

The opinion in the Sears case, and the opinion in the Compco case, made no reference to a prior decision of the Supreme Court in International

In Pottstown Daily News Publishing Co. v. Pottstown Broadcasting Co. (1963) 411 Pa. 383 [ 192 A.2d 657 ], plaintiff newspaper was granted an injunction restraining defendant radio broadcaster from appropriating news gathered by plaintiff. The court said (p. 663): “Competition in business is jealously protected by the law and the law abhors that which tends to diminish or stifle competition. While a competitor may, subject to the patent, copyright and trademark laws, initiate his rival’s business practices, processes and methods, yet the protection which the law affords to competition does not and should not countenance the usurpation of a competitor’s investment and toil. . . . [I]nsofar as the News Company pleads that the Broadcasting Company has ‘pirated’ news items gathered through the special services of the News Company, such states a violation of a property right and a claim of unfair competition which the state courts have jurisdiction to determine.” The court also noted (p. 662) that unfair competition originally related to the “palming off" of one’s goods as those of a competitor, and said (quoting from A. L. A. Schechter Poultry Corp. v. United States, 295 U.S. 495 , 531-532 [ 79 L.Ed. 1570 , 1580-1581, 55 S.Ct. 837 ]): “In recent years, its scope has been extended. It has been held to apply to misappropriation as well as misrepresentation.”

In Capitol Records v. Mercury Records Corp. ( 221 F.2d 657 ), decided prior to the decisions in Sears and Compco, Capitol obtained the right, from a German company, to manufacture and distribute in the United States records of performances by certain “highly gifted artists.” The court stated that the federal copyright act does not extend protection to phonograph records of performances of public domain compositions by virtuosos (see RCA Mfg. Co. v. Whiteman, 114 F.2d 86 , 89), and that New York law applied. The court determined that applicable New York law was in the decision in Metropolitan Opera Assn. v. Wagner-Nichols Recorder Corp., 199 Misc. 786 [ 101 N.Y.S.2d 483 ], wherein Columbia Records, which had the exclusive right to sell (and had sold) records of certain operas, was granted an injunction to restrain unfair competition by the defendant, which had recorded the performances from broadcasts, and sold the records. The judgment in favor of Capitol was affirmed. (For a discussion of the aforementioned cases, see Piracy on Records, 5 Stan. L. Rev. 433 , 443 et seq.; Golstein, Copyright, 69 Colum.L.Rev. 49 et seq.)

After the decisions in the Sears and Compco cases, several courts (state and federal) granted injunctive relief on the ground that misappropriation of unpatentable or uncopyrightable property by a competitor constituted

In Capitol Records, Inc.v. Greatest Records, Inc., supra, 43 Misc. 878 [ 252 N.Y.S.2d 553 , 555-556]), it was said; “It is undisputed that prior to the Sears, Roebuck and Compco cases, supra, the law of this State protected the plaintiff from unauthorized reproduction of performances embodied on a master recording, basing such protection upon the doctrines of unfair competition, common law copyright or unlawful interference with contract. [Citations.] Sears, Roebuck & Co. v. Stiffel Co., supra, dealt with the sale to the public by defendant of a lamp which was ‘substantially identical’ ( 376 U.S. 225 , 226, 84 S.Ct. 784 ) to that produced by plaintiff. Compco Corp. v. Day-Brite Lighting, supra, dealt with the sale of an imitation of plaintiff’s lighting fixture which allegedly was distinctive in design. Neither of those learned decisions stands for the proposition that this plaintiff is not entitled to protection against the unauthorized appropriation, reproduction or duplication of the actual performances contained in its records.” It was also said (p. 556), quoting from the opinion in Columbia Broadcasting System, Inc. v. Documentaries Unlimited, Inc.,

In another case (Grove Press, Inc. v. Collectors Publication, Inc., 264 F. Supp. 603 ) decided after the Sears and Compco cases, defendant reproduced, by photocopy and offset-lithography, a book published by plaintiff, and sold the reproductions in competition with plaintiff. The book was in the public domain (plaintiff acquired the right to publish it from a German company). The court granted a preliminary injunction restraining defendant from publishing the reproduced copies and said (p. 606): “The words in an uncopyrightable book are in the public domain and may be copied by anyone without infringing any copyright. Such copying, alone, does not constitute unfair competition. Sears, Roebuck & Co. v. Stiffel, 376 U.S. 225 , 84 S.Ct. 784 , 11 L.Ed.2d 661 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 , 84 S.Ct. 779 , 11 L.Ed.2d 669 (1964). . . Unfair appropriation of the property of a competitor is unfair competition and redressable in a situation of this kind despite the holdings in Sears, Roebuck & Co. v. Stiffel, supra, and Compco Corp. v. Day-Brite Lighting, Inc., supra. Greater Recording Co. v. Stambler, 144 U.S.P.Q. 547 (N.Y. Sup. Ct. 1965); Flamingo Telefilm Sales, Inc. v. United Artists Corp., 141 U.S.P.Q. 461 (N.Y. Sup. Ct. 1964), rev’d on other grounds, 22 A.D.2d 778 , 254 N.Y.S.2d 36 (1964); cf Cable Vision, Inc. v. KUTV, Inc., 335 F.2d 348 , 351 (9th Cir. 1964). Defendants’ first edition is more than mere copying of Plaintiff’s work, the Grove edition. In view of Plaintiff’s expenditure of substantial sums in setting type and engraving plates, it would constitute unfair competition for Defendants to appropriate the value and benefit of such expenditure to themselves by photographing and reproducing Plaintiff’s book through the offset-lithography process, thereby cutting their own costs and obtaining an unfair

In the present case, as above shown, Capitol expends substantial effort, skill and money in selecting performing artists and obtaining the exclusive right to record their performances, in mechanically reproducing their performances on discs and tapes of the highest quality, and in promoting the sale of the tapes and discs. Phoenix acquires the finished tapes and discs at nominal retail cost, reproduces them on inferior tape cartridges at little cost, labels the cartridges with the same title and the same name of the performing artists as appear on the Capitol recordings, and sells the cartridges in competition with, and at a substantially lower price than, the discs and tapes sold by Capitol. It is obvious that Phoenix is able to sell the cartridges at such lower price, and still gain substantial profit, because Phoenix circumvents the necessity of expending skill and money in acquiring the artists and recording their performances. Thus, Phoenix unfairly appropriates artistic performances produced by Capitol’s efforts, and. Phoenix profits thereby to the disadvantage of Capitol. Such conduct by Phoenix is unfair competition within the rulings in several of the above-cited cases. Moreover, although Phoenix applies a label on the back of its cartridges in effect disclaiming any connection with Capitol or the performing artists, such disclaimer of itself does not negate “palming off” or confusing the public as to the source of the recorded performances—the front of Phoenix’s cartridges bears the same title (i.e., “Coin’ Out of My Head”) and the names of the same performing artists (i.e., “The Letter-men”) as appear on the discs and tapes sold by Capitol and as appear in leading publications in the recording industry as having been produced by Capitol. Thus, there is a question of fact for the court at the trial regarding a permanent injunction as to whether Phoenix’s conduct constituted “palming off ” or confusion of the public as to the source of the recorded performances.

Phoenix’s argument that the state court cannot restrain such unfair competiton is not sustainable. Under some of the above-cited cases, state law, statutory or decisional, may in some circumstances grant relief where deceptive or fraudulent competitive practices are conducted, such as circumstances where one palms off his products as those of his competitor,

The order (granting preliminary injunction) is affirmed.

Lillie, J., and Thompson, J., concurred.

Appellants’ petition for a hearing by the Supreme Court was denied February 5,1970.