EGC Corp. v. Aponte-Cruz

First Circuit reverses district court’s grant of summary judgment to the owners of Puerto Rican band El Gran Combo on claims for declaratory relief as well as district court’s denial of summary judgment on former lead vocalist Aponte-Cruz’s declaratory relief claim, finding that phrase “recording artist or artists featured on such sound recording” in the Digital Performance Right in Sound Recordings Act refers to individuals, and therefore Aponte-Cruz was entitled to 45% share of certain royalties generated by sound recordings on which he was lead vocalist. 

Rafael Ithier founded the musical group El Gran Combo in 1962 and created EGC Corp. to administer his rights in the band. Ithier is the sole owner of EGC Corp. Ithier and EGC Corp. brought suit against Carlos Juan Aponte-Cruz, who was a member of El Gran Combo from 1973 to 2014 and lead vocalist on over 200 of the band’s sound recordings, seeking a declaration that Ithier is the sole owner of the right to collect royalties under the Digital Performance Right in Sound Recordings Act of 1995 (DPRA); that Aponte-Cruz, during his tenure in the band, was an employee for hire and therefore Ithier was the sole proprietor of any rights to collect royalties; and that Aponte-Cruz is a non-featured artist with a right to collect royalties as a non-featured artist under the statute.

Under the DPRA, the “recording artist or artists featured on a sound recording” are entitled to a 45% share of certain royalties that the recording generates. Statutory royalties are collected and distributed by SoundExchange Inc., a “nonprofit collective designated by the Copyright Royalty Judges [pursuant to SWSA’s amendment to Section 114(g)(2)] to distribute receipts from the licensing of transmissions.” For many years, and up until 2017, SoundExchange remitted all statutory royalties for El Gran Combo to EGC Corp.; EGC Corp. and Ithier did not distribute any of such royalties to members of El Gran Combo.

Aponte-Cruz submitted a request to SoundExchange for statutory royalties under Section  114(g)(2)(D) on the basis that, as lead vocalist, he is the “artist … featured” on certain El Gran Combo sound recordings. SoundExchange responded by halting payments of statutory royalties relating to the El Gran Combo sound recordings featuring Aponte-Cruz as lead vocalist. 

This prompted Ithier and EGC Corp. to file for declaratory relief, arguing based upon the text of the statute and the relevant legislative history that El Gran Combo, as an independent entity distinct from any of its individual members, is itself the “artist … featured” and that therefore the company that owns El Gran Combo, EGC Corp. (and its owner, Ithier), is entitled to the 45% share of the royalties. Aponte-Cruz moved for summary judgment on his counterclaim for declaratory relief, and Ithier and EGC Corp. made a cross-motion for summary judgment.

The district court, relying upon a Report & Recommendation from a magistrate judge, entered judgment granting declaratory relief to Ithier, ruling that “(i) El Gran Combo  … is the group most prominently featured on the sound recordings and, thus, is entitled to collect the royalties as the featured artist; and (ii) Rafael Ithier, as the sole owner of El Gran Combo, is entitled to collect the featured artist royalties due to the corporation.” Aponte-Cruz appealed.

SoundExchange, the American Federation of Musicians of the United States and Canada, and the Screen Actors Guild and the American Federation of Television and Radio Artists filed an amicus brief. In the brief, the amici stated that the district court’s decision effectuates a radical departure from the distribution policies and practices that SoundExchange has implemented over the past 20 years based on the DPRA and international recording industry norms, namely, to “‘distribute 45% of statutory royalties to the solo artist, or members of a group of artists, featured on a recording’ and not to the owners of the band, regardless of whether the cover of an album that contains a recording mentions only the band and thus none of the band’s members.” 

The First Circuit first analyzed the text of the statutory language, observing that “no provision defines either ‘the recording artist or artists featured on such sound recording' or any of that phrase’s constituent parts.” In looking to the plain language of the statute, the court said that “the statutory provision’s use of the word ‘featured’ requires that we ‘focus on the sound recording album covers’ to determine which artist was ‘featured.’” The court explained that other sections of the Copyright Act refer to “who performs on a sound recording” (emphasis added) when describing a “featured recording artist,” and this use of the word “who … is most comfortably read to be referring to a natural person, rather than an artificial entity.” This is further supported by the definition of “perform” in the Copyright Act. Moreover, the statutory provision refers to a “recording artist … featured” (emphasis added) on a sound recording and elsewhere refers to such an “artist” as one “who performs” (emphasis added) and thus one who “recite[s], render[s], play[s], dance[s], or act[s],” namely, to an individual person and not a disembodied entity. Dissecting the statute’s use of “featured” as compared to “nonfeatured,” the court adopted Aponte-Cruz’s interpretation of the relationship: “the word ‘featured’ could simply require us—when confronted with such an album cover—to treat as ‘featured’ the individual natural persons who are members of the band named on the cover and as ‘nonfeatured’ any session musicians, backup vocalists, or chorus members who also appear on the sound recordings but are not members of the band.”

Next, although opining that the statutory language was ostensibly clear enough not to warrant further inquiry, the court reviewed the legislative history of this section and found that most of the legislative history appears to contemplate that “‘the recording artist or artists featured on such sound recordings’ would be natural persons.” The court also noted that although “Congress initially envisioned statutory royalties flowing through copyright owners, like record companies,” in 2002, Congress amended the statute “to provide even more protection to recording artists by codifying arrangements to pay them directly through a collective like SoundExchange, rather than through record companies or other copyright owners.” The court further explained that the portion of a Senate Report that Ithier and EGC Corp. relied on was not applicable to the key disputed point, namely, “whether a ‘featured’ artist in Section 114(g)(2)(D) is the band as an entity independent of its individual members or instead the individual members of that band.”

In a footnote, the court addressed an argument put forth by Ithier and EGC Corp. that the contract between the recording artist and the band should be dispositive of the allocation of royalties from the sound recordings. Because there was not such a contract in place, the court did not rule as to whether a contractual renunciation of the statutory royalty scheme would be upheld. 

Taking all of this into account, the court reversed the award of summary judgment to Ithier and EGC Corp. and the denial of summary judgment to Aponte-Cruz and ruled that the parties would each bear their own costs. 

Summary prepared by Melanie Howard and Jennifer Kahn