While post-1972 audio recordings are governed by federal law, pre-1972 audio recordings are currently governed by state law, despite a growing tide of opinion that these should fall under federal law as well (for the sake of simplicity). This CLIR report compares some of the state laws, including North Carolina’s. Note the suggestion that libraries in NC may be able to defend “webcasting” or other use of materials if they can demonstrate non-commercial use.
We have been unable to ascertain the legislative history behind the statutes in North Carolina.
2. Criminal Statutes
a. Sound Recording Antipiracy Statute
North Carolina has a state statute explicitly addressing sound recordings. North Carolina General Statute Annotated § 14-433 makes it unlawful for a person to:
Knowingly transfer or cause to be transferred, directly or indirectly by any means, any sounds recorded on a phonograph record, disc, wire, tape, film or other article on which sounds are recorded, with the intent to sell or cause to be sold, or to use or cause to be used for profit through public performance, such article on which sounds are so transferred, without consent of the owner.
Manufacture, distribute, wholesale or transport any article for profit, or possess for these purposes with the knowledge that the sounds recorded on the article were transferred in violation of (1) above.
Knowingly transfer or cause to be transferred, directly or indirectly by any means, any sounds at a live performance, with the intent to sell or cause to be sold, or to use or cause to be used for profit through public performance, the article on which sounds are so transferred, without consent of the owner.
Manufacture, distribute, transport or wholesale any article for profit, or possess for those purposes with the knowledge that the sounds recorded on the article were transferred in violation of above (3).
Provisions (1) and (2) apply only to pre-1972 sound recordings.
Also, the statute does not apply to:
Any person engaged in webcasting or radio or television broadcasting who transfers, or causes to be transferred, any such sounds other than from the sound track of a motion picture intended for, or in connection with webcast, broadcast or telecast transmission or related uses, or for archival purposes. An Internet service provider who is solely providing a conduit for access to the Internet shall not be deemed to be using, or causing to be used, recordings that may be transferred over the Internet by third parties in violation of this Article.
b. Possible Defenses to Antipiracy Statute
Although there is no state law interpreting the statute, the text of the statute suggests some possible defenses. The explicit language of the statute suggests that that neither consensual uses nor noncommercial uses of sound recordings would be unlawful.
c. Labeling Laws
North Carolina has a labeling statute. North Carolina General Statute Annotated provides:
(a) A person is guilty of failure to disclose the origin of an article when, for commercial advantage or private financial gain, the person knowingly advertises or offers for sale or resale, or sells or resells, or causes the rental, sale, or resale, or rents, or manufactures, or possesses for these purposes, any article, the packaging, cover, box, jacket, or label of which does not clearly and conspicuously disclose the actual true name and address of the manufacturer of the article and the name of the actual author, artist, performer, producer, programmer, or group.
(b) This section does not require the original manufacturer or authorized licensees of software producers to disclose the contributing authors or programmers. As used in this section, the term “manufacturer” shall not include the manufacturer of the article’s packaging, cover, box, jacket, or label itself.
There is little case law interpreting this provision.
3. Civil Statutes
a. Civil Action for Damages for Piracy
North Carolina General Statute Annotated § 14-436 provides for a private right of action for any owner whose work is allegedly the subject of a violation of the antipiracy statue § 14-433. In the civil action, the owner may be entitled to damages that could include actual, compensatory, and incidental damages.
There is no legislative history or state decisional elaborating on the meaning of this statute.
b. Other Statutes
i. N.C. Gen. Stat. Ann. § 66-28. Prohibition of rights to further restrict or to collect royalties on commercial use
Section 66 abolishes “any common-law rights attaching to phonograph records and electrical transcriptions, whose sole value is in their use, and to forbid further restrictions of the collection of subsequent fees and royalties on phonograph records and electrical transcriptions by performers who were paid for the initial performance at the recording thereof.” Therefore, no person may further restrict or collect royalties when a musical performance is sold in commerce. This, however, does not take away rights given by U.S. copyright laws. North Carolina passed this statute in response to Waring v. WDS Broadcasting Station, where the court had recognized a continuing interest in common law copyright in sound recordings. North Carolina acted to abolish “any common law rights in recorded performances that might otherwise have survived the sale of the phonograph record.” Defenses to these common law statutes include a claim that the work has been published. In North Carolina, a defendant would merely have to show that the work had been commercially sold in the state.
There is some case law interpreting § 66-28. In Liberty/UA, Inc. v. Eastern Tape Corp., the plaintiff, a manufacturer of sound recordings, claimed that the defendants engaged in unfair competition when they pirated performances originally recorded by the plaintiff. The plaintiff did not assert any claims of statutory or common law copyright, but asserted a claim of unfair competition. The court held that the defendant’s conduct of appropriating the plaintiff’s sound recordings and selling them in competition with the plaintiff amounted to unfair competition. The court went on to interpret § 66-28, finding that “use” within the statute meant that a record sold in commerce could be “played privately, publicly, and commercially without restriction.” The court noted that when the statute was enacted in 1939, record piracy was not a problem, and that to construe the statute to make the re-recording of sound recordings onto another record and selling in competition with the original producer a legitimate activity would be to give the statute a construction never intended.
Here is an excerpt from the case:
The above statute was enacted in 1939. Apparently record piracy did not become a problem until sometime later. In an article on the subject published in the Stanford Law Review in 1953 it is stated: “Pirating,” in this instance, describes the practice of re-recording a phonograph record manufactured by another company and then selling the duplicates. Record piracy mushroomed in the last five years from relative obscurity to a point where two dozen labels were being sold in various parts of the country. A few “pirates” circulated catalogs of their booty. Some labels received a national distribution and were handled in the most legitimate stores. Occasionally, “dubs” were even used in local juke boxes. It is unlikely that in 1939 the legislature had heard of this type of conduct, and we cannot conceive that one of its purposes in enacting [§ 66-28] was to make legitimate such unfair competitive practice. [§ 66-28] was enacted shortly after the Federal District Court for the Eastern District of North Carolina held that Fred Waring had a common law property right in his orchestra’s recordings and could prevent defendant from playing the recordings over a radio station without his permission. The effect of [§ 66-28] was to overrule the Waring decision by eliminating any common law right to restrict the use of a recording sold for use in this State. However, we interpret “use,” as employed in the statute, to mean the use for which a recording is intended; i.e., the playing of the recording. Thus, under the statute, any record sold in commerce for use in this State may be played privately, publicly, and commercially without restriction. It does not follow, however, that the performance contained on the record can be re-recorded onto another record and the re-recording sold in competition with the original producer. To so hold would, in our opinion, give a construction to the statute that was never intended.
ii. N.C. Gen Stat Ann. § 75-1.1 Methods of competition, acts and practices regulated; legislative policy
Section (a) creates a cause of action for unfair competition by stating “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.” In § (b) it defines “commerce” as including “all business activities, however denominated, but does not include professional services rendered by a member of a learned profession.”
It also creates an exemption for acts done by publishers, owners, agents, or employees of a newspaper, periodical, or radio or television station when there is not direct financial interest. However, based on the case law, it appears unlikely that a library would categorically fall under either of these exemptions. Additionally, the burden of proving the exemption is on the party claiming the exemption.
Shafman v. Donald Larson, Inc. clarified that once a jury finds a defendant’s actions to be unfair or deceptive, “at that point, the burden shifts to the defendant to prove that he is exempt from the provisions of N.C.G.S. § 75-1.1. For example, a defendant may prove that his acts were not “in or affecting commerce” or that he fell within the statute’s express exemptions contained in N.C. Gen. Stat. Ann. § 75-1.1 (b) & (c). However, the case did not elaborate on the meaning of § 75-1.1(c).
Meanwhile, in Stolfo v. Kernodle, the court noted, “The only two statutory exceptions to the application of G.S. § 75-1.1 are for (1) members of learned professions providing professional services, and (2) third-party providers of advertising who have no knowledge of the falsity of an advertisement and no financial interest in the product advertised. N.C. Gen. Stat. Ann. § 75-1.1 (b)-(c) (1994).”
It is unlikely that nonprofit institutions seeking to use pre-1972 sound recordings would encounter problems with this statute as long as they can demonstrate a lack of commercial competition.
4. Nonstatutory Causes of Action
a. Common Law Copyright
Although § 66-28 expressly abolishes any common law copyright, Liberty/UA suggests that there may be a small window of protection for subject matter that is not protectable under federal copyright laws. However, the plaintiff in Liberty/UA did not assert any common law copyright claims, so it is unclear if the protection would exist on those grounds since the sound recordings were protected by unfair competition.
b. Unfair Competition
In Dealers Supply Co. Inc. v. Cheil Industries, the court held that in order to state a claim for unfair and deceptive trade practices under North Carolina law, a plaintiff must show (1) that the defendant committed an unfair or deceptive act or practice, or an unfair method of competition; (2) in or affecting commerce; (3) which proximately caused actual injury to plaintiff. However, this cause of action appears unlikely to apply in situations regarding the use by a nonprofit of a pre-1972 sound recording unless a plaintiff could show that the institution’s use affects commerce in some fashion that harms the plaintiff.
State law suggests that North Carolina recognizes a common law misappropriation action. In Combined Insurance Co. of America v. Consolidate Insurance Co., the plaintiff filed suit seeking an injunction for appropriation of trade secrets. The plaintiff had developed a special business system and considered it to be confidential information and a trade secret. The defendant sought out employees of the plaintiff to develop its own sales plan. Later, it was found that 73 percent of insurance policies that the defendant sold were former policyholders of the plaintiffs. The court found that the plaintiff made a prima facie showing that the defendant misappropriated information from the plaintiff. Again, this doctrine seems to have been applied primarily to misappropriation of trade secrets; it is unlikely, although not impossible, that its reach would be extended to sound recordings.
5. Right of Publicity
a. Right of Publicity Statute
There is no statutory right of publicity statute in North Carolina.
b. Common Law Right of Publicity
There does not appear to be any case law establishing a common law right to publicity in North Carolina.
6. Potential Defenses for Nonprofit Institutions
Under North Carolina law (both statutory and common law), nonprofit institutions seem to have a number of potential defenses regarding their use of pre-1972 sound recordings. First, although North Carolina’s criminal statute does not contain any statutory exemption for nonprofit institutions expressly, it appears to be one of the only states to have specifically exempted Webcasters from the scope of the law. Thus, if a nonprofit institution Webcasts material including pre-1972 sound recordings, it may be able to invoke the exemption. Next, statutory language in all of the provisions of § 14-433 (i.e., “intent to sell,” “commercial advantage”) suggests that commercial use is a requirement for finding a criminal violation. Therefore, nonprofit institutions may escape liability by demonstrating a noncommercial intent to their use of the sound recordings. Consent remains a valid defense as well. Further, because the civil remedy under § 14-436 is predicated upon a finding of a violation of § 14-433, a nonprofit institution that avoids criminal liability will not be held civilly liable.
Regarding the statutory protection of unfair competition, a nonprofit institution may again avoid liability by claiming that the use is noncommercial and that the use in no way deceives the public. In terms of the common law variant of unfair competition, the nonprofit institution will want to demonstrate that it does not compete with the original owner, that its use is not unfair, and that there is no harm to the owner. Similarly, to avoid liability under the misappropriation doctrine, the organization should again claim noncommercial use and that it has not capitalized off of the appropriation of the owner’s product. Finally, common law copyright should not be a problem for nonprofit institutions as long as the original owner commercially distributed the work in some way.