Zomba Enterprises, Inc. v. Panorama Records, Inc.

Court of Appeals for the Sixth Circuit
491 F.3d 574 (2007)

ELI5:

Rule of Law:

The commercial reproduction of an entire copyrighted creative work, such as a musical composition for a karaoke disc, is not a transformative use and does not qualify as fair use under the Copyright Act. Continuing such infringement after receiving cease-and-desist letters and violating a court order constitutes willful infringement, justifying enhanced statutory damages.

Facts:

Since 1998, Panorama Records, Inc. ('Panorama') manufactured and sold karaoke compact discs (CD+Gs) containing top hits from various musical genres.
Panorama created these discs by hiring musicians to record new versions of popular songs, copying the entire musical composition and lyrics without alteration.
Zomba Enterprises, Inc. and Zomba Songs, Inc. ('Zomba') owned and administered the copyrights for many of the pop songs Panorama used.
Prior to any contact from Zomba, Panorama had received a cease-and-desist letter in 2000 from another publisher, Without Anna Music, for similar unlicensed use, which resulted in Panorama obtaining licenses from that publisher.
On February 28, 2002, Zomba's attorney sent Panorama a cease-and-desist letter identifying the infringed songs and offering specific licensing terms.
After receiving the letter, Panorama's principal, Laurindo Santos, and its licensing agent contacted Zomba's attorney but did not obtain a license or stop selling the karaoke discs containing Zomba's songs.
Zomba sent a follow-up cease-and-desist letter on April 12, 2002, but Panorama continued to sell the infringing products without a license.

Procedural Posture:

Zomba filed a complaint against Panorama in federal district court, asserting thirty counts of copyright infringement.
The parties entered into a consent order in which Panorama agreed to be restrained from distributing any karaoke package containing Zomba's compositions.
Panorama breached the consent order and Zomba moved for sanctions.
The parties filed cross-motions for summary judgment.
The district court (a court of first instance) granted summary judgment for Zomba on the issue of copyright infringement, rejecting Panorama's fair-use defense.
Panorama failed to appear at a pretrial conference, and the district court entered a default against Panorama on the issue of damages.
Following a damages hearing, the district court found Panorama's infringement was willful and awarded Zomba $806,000 in statutory damages.
The district court later awarded Zomba attorney fees and costs.
Panorama (appellant) appealed the district court's judgment to the U.S. Court of Appeals for the Sixth Circuit, challenging the infringement finding, the willfulness determination, the damage award, and the award of attorney fees.

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Issue:

Does a commercial entity that reproduces entire copyrighted musical compositions for karaoke discs without a license willfully infringe the copyrights, or does this conduct constitute fair use?

Opinions:

Majority - Moore, J.

Yes, a commercial entity that reproduces entire copyrighted musical compositions for karaoke discs without a license willfully infringes the copyrights, and such conduct does not constitute fair use. The court rejected Panorama's fair-use defense by analyzing the four statutory factors. First, the purpose and character of the use was commercial and not transformative; creating a karaoke version merely supersedes the original's object without adding new expression or meaning, and the end-user's purpose is irrelevant when the infringer's use is for commercial profit. Second, the nature of the copyrighted work involved popular songs, which are creative works at the core of copyright protection. Third, Panorama copied the entire compositions, both music and lyrics, which weighs heavily against fair use. Fourth, Panorama's unlicensed use directly harmed the potential market for Zomba's works by depriving Zomba of licensing fees it otherwise would have earned in the established karaoke market. The court also found the infringement was willful because Panorama continued its infringing activities after receiving multiple cease-and-desist letters and, most critically, after violating a consent order from the district court that explicitly forbade it from distributing the infringing works, demonstrating a reckless disregard for Zomba's rights.

Analysis:

This decision solidifies the principle that merely repackaging a creative work into a new format for commercial sale is not a transformative use under the fair use doctrine. It clarifies that the commercial nature of the infringement is paramount, even if the end-user engages in a potentially creative or educational activity. The case establishes a clear benchmark for willfulness, holding that infringement in violation of a court's consent order is objectively unreasonable and demonstrates a reckless disregard for the copyright holder's rights, justifying enhanced statutory damages. This precedent strengthens the position of copyright holders against commercial infringers and limits the applicability of the fair use defense in cases involving verbatim copying for profit.

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