False advertising claims over music licensing survive

Tresóna Multimedia LLC v. Legg, 2015 WL 470228, No. CV–14–02141 (D. Az. Feb. 4, 2015)

Tresóna is a music copyright licensing company that sells custom arrangement licenses for particular pieces of music, allowing the purchaser to arrange a piece of music for a client (typically a music organization or a “show choir”). Defendant David Legg applied for a custom arrangement license for the song “Black Sheep” and signed a “Work for Hire Agreement” for the song. Tresóna alleged that the Agreement gave Legg the right to arrange Black Sheep for one client—“Nitro Show Choir”—and nothing more, but Legg then breached the Agreement by allowing the other defendants (CALLC) to sell his custom arrangement as a “stock arrangement” on their website.

The court found that it had personal jurisdiction over the defendants, at least at the motion to dismiss stage.  Tresóna’s claims arose out of defendants’ forum-related activities: the false advertising claim would not have arisen but for the alleged false advertising, and the intentional interference claims likewise.

False advertising: Tresóna alleged that defendants' website falsely advertised their ability to grant exclusive rights to use musical arrangements in a specific geographical area for a specific period of time, and that it can accept and sell arrangements licensed by Tresóna. Tresóna also alleged materiality: the ability to grant exclusive rights in a particular arrangement is important because “[s]how choirs often purchase these arrangements so they can use them in a competition, and want to ensure that other show choirs will not be using the same arrangement.”

Intentional interference with contract: The other defendants allegedly induced Legg to breach his Tresóna contract by telling him he could license to them.  Defendants argued that no breach was possible in the way Tresóna argued, because Tresóna itself had no rights in Legg’s arrangement or in the original copyrighted song.  At this stage, the court wasn’t going to decide whether the breach of contract claim was actually a veiled copyright infringement claim.  The contract could be read as prohibiting resale of Legg’s arrangement. If, as alleged, the other defendants intentionally lied to Legg about the royalty rates they could give him for an arrangement licensed by Tresóna, then that was wrongful conduct with an improper motive sufficient to state a claim for intentional interference with contract (and business expectancy).  CALLC allegedly dishonestly obtained an 85%–15% royalty split from music publishers by falsely representing itself as a print publisher, when in fact it was a digital publisher. This enabled it to offer a higher royalty for the Black Sheep arrangement than Tresóna could with its 50/50 digital publisher split, thus inducing Legg to breach its contract and Tresóna to lose the opportunity to sell the arrangement to thousands of choirs in the US.  Defendants argued that Tresóna failed to identify a specific business expectancy. However, courts have allowed a plaintiff to allege a business expectancy with a class of individuals, as long as they’re specifically identifiable.  At the pleading stage, Tresóna had done enough, but to survive summary judgment, it would need to present evidence showing more than a mere “hope” that its business expectancy would have been realized.

Defendants also argued copyright preemption.  In return for the right to arrange “Black Sheep” for the Nitro Show Choir, Legg agreed to grant all rights in his arrangement of Black Sheep to the original copyright owner of the song if his arrangement did not qualify as a work for hire. The contract also specified that “neither the [Legg] nor [Nitro Show Choir] has any right to sell, resell, reproduce, disseminate, lease, rent and/or use the Arrangement in any manner whatsoever beyond the scope of the grant of rights hereunder.” Tresóna sufficiently stated a claim for breach of contract.  The court declined to find copyright preemption.  Tresóna alleged that it had the right to allow arrangers to make limited-use arrangements of “Black Sheep” on behalf of the copyright owner.  “As a party to the contract, Tresóna clearly has standing to enforce it. Legg cites no authority to suggest that an entity in Tresóna’s position is somehow foreclosed from enforcing a contract to which it is a party.”  As to whether breach of contract contained an extra element here, as required to avoid §301 preemption, the parties failed to adequately brief the issue, and the court denied the motion to dismiss.

Legg argued that the contract couldn’t limit his ability to get further permission from the copyright owner, and that the contract didn’t allege that defendants failed to get permission from the copyright owner.  If the copyright owner allowed it, then arguably Legg didn’t breach his contract, but this affirmative defense couldn’t be resolved at the motion to dismiss stage.