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Naxos Wins Landmark Case Against Capitol/EMI


June 2, 2003

New York, USA - On November 22, 2002 Capitol Records, Inc. brought an action against Naxos of America in the United States District Court, Southern District of New York.  Capitol brought the action for unfair competition, misappropriation of property, unjust enrichment and common law copyright infringement.  Capitol challenged Naxos' distribution of historic recordings dating from the 1930's featuring performances by Yehudi Menuhin, Edwin Fisher and Pablo Casals.  Capitol claimed to be the owner of all rights in the United States to the original recordings.  Capitol complained that Naxos sold and distributed its restorations of the original recordings throughout the United States in bad faith, at substantially discounted prices in direct competition with Capitol's recordings of the same performances, often in the same retail outlets. 

The Court, in finding for Naxos, noted that Naxos used the original discs, the so-called shellacs (78rpm shellac discs) to restore the performances.  The restorations involved artistic choices and the use of the latest digital software.  Naxos has distributed and sold its restorations at discount prices since about October, 1999 throughout the United States.  The Court took notice of the fact the Naxos restorations have been widely praised by classical music critics.

Naxos had claimed that EMI expressly disclaimed any exclusive commercial interest in the original recordings made more than 50 years ago and that Capitol had, furthermore, failed to pursue many other companies engaging in restorations of the original recordings.  The Court completely agreed with Naxos.

The Court found that Capitol has no rights in the original recordings and that the English copyrights in the recordings had long since expired.  The Court also found ambiguity concerning Capitol's chain of title in all agreements.  The Court further found that Capitol waived or abandoned any interests it had in the original recordings.  Capitol's lax practices were found consistent with EMI's disclaimer of any intellectual property rights in any sound recordings made prior to 1957 and which are more than 50 years old.  Naxos therefore operated under the good faith belief that the recordings at issue are in the public domain, said the Court.

The Court further found that Naxos has not competed unfairly.  Since Capitol has no rights in the original recordings it cannot charge Naxos with unfair competition.  Naxos never falsely advertised its restored products as duplicates of the originals and did not simply copy Capitol/EMI's restorations.  Naxos employed significant effort to create entirely new and commercially viable products.  Naxos did not profit from the labour, skill, expenditures, name and reputation of others but rather created and marketed new products relying on its own labour, skill, and reputation.

The Court found that the quality and nature of the restorations stand as evidence to the fact that Naxos did not aim to simply duplicate the original recordings and capitalize on Capitol's efforts.  Instead, Naxos worked to create new products with superior sound.

The Court agreed that the Naxos restorations do not discourage but rather encourage the preservation and dissemination of fine performances. The Court even felt that it was possible that the Naxos restorations have revived the relevant market in historical classical performances to Capitol's benefit.  The Naxos restorations help ensure that quality historic performances are commercially available for the present generation and well preserved for the next, the Court said.

The Court clearly concluded that Naxos lacks the bad faith necessary in a common law unfair competition claim because Naxos neither attempted to sell its records as Capitol's, nor sell Capitol's records as its own.  Naxos did not misappropriate Capitol's labour and expenditures, but rather sought to profit from its own efforts and ingenuity.

The Naxos motion to dismiss the Capitol action was granted by the court and converted to a summary judgment.  The Capitol motion for partial summary judgment was denied.  All substantive issues were decided in the favour of Naxos.


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