It was just a tiny, hole-in-the-wall record store tucked away in Manhattan's Chelsea neighborhood. But it wound up creating a major legal problem for the federal government, large music companies and many other industries.

Midnight Records was a favorite among collectors of jazz and blues. It specialized in obscure recordings, such as imports and old vinyl recordings that record companies hadn't converted to CDs.

The store also caught the eye of the Recording Industry Association of America (RIAA), and the organization didn't like what it saw: The store's shelves contained what appeared to be many unauthorized recordings of live music performances–commonly known as bootleg recordings. Offering to sell bootlegs is a violation of federal law, and the RIAA reported the store to police.

In September 2003, federal and state law enforcement agents burst into Midnight Records and arrested the owner, Jean Martignon. He was subsequently indicted on one count of violating the federal anti-bootlegging statute (18 U.S.C. ?? 1/2 2319A). He faced a maximum of five years in jail and a fine of $250,000.

Martignon's public defender put up a novel defense. In January 2004, the lawyer moved to dismiss the charges against Martignon on the basis that the federal anti-bootlegging statute violated the copyright clause of the U.S. Constitution, which limits copyright to “writings and discoveries.”

To the surprise of many IP attorneys, this argument convinced Judge Harold Baer, a federal district judge in Manhattan. He agreed the statute was unconstitutional and struck it down. In October 2004, the Justice Department appealed the ruling in United States v. Martignon, and the

2nd Circuit is expected to hear oral arguments in the case later this summer. A wide array of businesses are watching this case because its ramifications go far beyond the music industry.

“This is part of a much larger battle,” says Jeff Sanders, an entertainment attorney at Seyfarth Shaw. On one side are those–like the recording companies–that are pushing Congress to create new, expansive legal protections for IP. On the other side are those–like librarians and technology companies–who are fighting to maintain the country's traditional IP regime, which gives non-IP owners important rights.

“This ruling is important because it shows that the copyright clause sets some limits on what can be protected,” says Jessica Litman, a professor of copyright law at Wayne State University Law School. “Congress can't protect everything that the entertainment industry wants protected.”

Constitutional Debate

The copyright clause of the U.S. Constitution is a double-edged sword. It grants Congress the power to protect certain types of IP, but also sets limits on this power. Specifically, the clause allows Congress to protect only “writings and discoveries” and to grant such protection “for limited times.” Judge Baer found that the anti-bootlegging statute was an attempt to enact a new copyright-type protection that violated both of these constitutional limits.

Courts broadly construe the term “writings”–to encompass such things as movies and music recordings. However, the courts and Congress only extend that protection to works that are set down in some fixed manner. By contrast, the anti-bootlegging statute protected live musical performances that weren't fixed by the performers in any permanent way. These ephemeral performances were not “writings,” Baer ruled, and so the anti-bootlegging statute's attempt to protect them exceeded a clear limit set by the copyright clause.

Baer also took issue with the lack of a time limit on the anti-bootlegging statute. The statutory protection lasted indefinitely, and so it conflicted with the copyright clause's requirement that Congress protect works for only “limited times.”

However, the U.S. Attorneys' Office never claimed the statute was valid under the copyright clause. Instead, the government argued it was a valid exercise of Congress' power under the commerce clause.

Judge Baer rejected this reasoning, holding that Congress can't avoid the copyright clause's explicit limits by seeking to enact copyright-like protections under other parts of the Constitution. Allowing Congress to do so would effectively repeal the copyright clause's limits on legislative power, Baer found.

On The Radar

The district court's decision has generated some heated responses.

“This ruling is crazy,” says Neil Turkewitz, executive vice president of the RIAA. The statute protects ephemeral performances that are unprotectable by copyright; therefore, it can't possibly be creating copyright-like rights that are subject to the limits of the copyright clause, he argues.

Other experts say the court's decision is startling, but on closer examination, the legal analysis is sound.

“It's one of those cases where there is a surprising result, but when you start asking questions, these seem to be the right answers,” Litman says.

All sides, however, seem to agree on one thing: Even if the 2nd Circuit upholds the ruling, it will do surprisingly little harm to the music industry.

One reason is that authorities rarely use the anti-bootlegging statute to go after infringers. Prosecutions under the statute are few and far between.

A second and more important factor is that the ruling leaves in place a plethora of other legal methods for pursuing and punishing music bootleggers. Most states have their own anti-bootlegging laws, which the ruling wouldn't affect. Copyright holders could still sue bootleggers civilly for infringing the copyrights of musical compositions found on bootleg recordings; the government can still criminally prosecute bootleggers; and performers can sue for violations of their publicity rights.

Even if all these methods are unable to curtail the sale of bootlegs, the music industry's profits might be enhanced.

“Research shows that bootlegs don't replace commercial sales, they boost commercial sales,” says David Patton, Martignon's attorney. “Most bands aren't concerned [about bootlegging] because it is free publicity, free marketing.”

Sounding Off

While the 2nd Circuit's ruling in this case may have little immediate impact on the music industry, the decision is expected to have a big impact on the nationwide struggle over the proper scope of IP protection. Congress has greatly expanded IP protections in recent years–it extended the term of copyright protection, granted additional copyright protection for old works and provided powerful new rights for copyrights in the online world.

Many large companies such as Sony, Walt Disney and Viacom want this expansionist trend to continue, and so do many in Congress. But some of their plans may be stymied if the 2nd Circuit upholds Baer's ruling.

For instance, upholding the ruling would jeopardize a bill the House of Representatives has repeatedly passed that would create a new type of IP protection for database information. Such information can't be protected under copyright law, because the U.S. Supreme Court has concluded that copyrights can't cover facts. The House bill tries to get around this by enacting the new database protection under the commerce clause, not the copyright clause. However, should the 2nd Circuit uphold Baer's ruling in Martignon, the House bill's circumvention of a basic copyright limit becomes much more constitutionally suspect.

That's why a lot of companies across various industries are concerned about this case. And that's why a consortium of companies and trade groups–including Reed Elsevier, the National Association of Realtors, the Association of American Publishers, and the Software and Information Industry Association–filed an amicus brief to support the government's position in Martignon. Most of these companies just happen to own (or the associations' members own) lots of database information.

The Justice Department declined to talk about the issues in Martignon or about how the 2nd Circuit might rule. The RIAA's Turkewitz, however, wasn't so reticent. “No part of me believes that the 2nd Circuit will uphold this decision,” he says.

Martignon's counsel believes otherwise. “It is always an uphill battle to have a statute declared unconstitutional,” Patton says. “[But] Judge Baer did the right thing, and I'm confident the 2nd Circuit will also do the right thing.”