By: Scott Hervey 

Businesses that feature music, either in the background, through a DJ, or live, must secure a public performance license from one or both of the major U.S. performance rights organizations, ASCAP and BMI.  The corporate operator of the Southern California chain of Roscoe’s House of Chicken and Waffles, East Coast Foods, Inc., learned this lesson the hard way; so did East Coast’s owner.  It came as no surprise that the Ninth Circuit upheld a district court’s finding of copyright infringement against the corporate operator of the restaurant chain.  What should be a wake up call for all business owners is that East Coast Foods’ president and primary shareholder, Herbert Hudson, was held individually liable for vicarious copyright infringement. 

East Coast operates a number of Roscoe’s House of Chicken and Waffles throughout Southern California, including a location in Long Beach.  Herbert Hudson is the sole officer and director of East Coast.  Attached to the Long Beach Roscoe’s is a bar and lounge area called the Sea Bird Jazz Lounge.

Shortly after the Long Beach Roscoe’s opened, ASCAP contacted East Coast to offer it a license to perform music by ASCAP members at the restaurant and lounge. East Coast failed to purchase a license, and between 2001 and 2007 East Coast ignored repeated requests from ASCAP to pay licensing fees. In 2008, ASCAP had an independent investigator visit the Long Beach Roscoe’s, make notes of the music being performed during his visit, and prepare a detailed investigative report indicating whether copyright infringement was occurring.  The investigator’s report noted numerous ASCAP controlled musical compositions performed by that night’s live musical act, as well as songs played from a CD over the lounge’s sound system. 

After confirming that the music publishers owned the validly registered copyrights to the songs identified in the investigator’s report, the music publishers sued East Coast and its owner, Herbert Hudson for eight counts of copyright infringement, each count corresponding to the eight ASCAP controlled songs publicly performed at the Long Beach Roscoe’s.  The District court granted the music publishers’ motion for summary judgment and awarded $4,500 in statutory damages against East Coast and Hudson, jointly and severally, for each eight song, for a total of $36,000, as well as $162,728.22 in attorney’s fees and costs. 

At the District court and on appeal to the Ninth Circuit, Hudson and East Coast claimed that they were not proper defendants.  Hudson and East Coast claimed that a separate entity, Shoreline Foods, Inc. owns and operates the Long Beach Roscoe’s.  Despite the defendants’ protestations, the Ninth Circuit upheld the district court’s determination that Hudson was liable for vicarious copyright infringement. 

In Sony Corp. v. Universal City Studios, Inc. the Supreme Court described a vicarious infringer as one who “was in a position to control the use of the copyrighted works by others and had authorized the use without permission from the copyright owner.”  In Perfect 10, Inc. v. the Ninth Circuit stated that a defendant will be vicariously liable for copyright infringement if he enjoys a direct financial benefit from another’s infringing activity and has the right and ability to supervise the infringing activity.  Liability for copyright infringement attaches not just to the direct infringer, but also to those who (i) own or control the premises where the infringing conduct occurred, (ii) have the right and ability to supervise those responsible for the infringing conduct, and (iii) derive a direct financial benefit from the infringement. 

In this case the Ninth Circuit stated that "[o]verwhelming evidence showed that East Coast and Hudson exercised control over both the Long Beach Roscoe’s and the Sea Bird Jazz Lounge."   The Plaintiff was able to establish that Hudson was the President and maintained controlling ownership of Shoreline.  As the sole officer and director of East Coast, Hudson had general "managerial authority" over the Long Beach Roscoe’s and had the ability to control what musical acts performed in the Sea Bird Jazz Lounge.  Additionally, both the District court and the Ninth Circuit were persuaded by the fact that the liquor license for the Long Beach Roscoe’s was issued to East Coast, that in the liquor license the restaurant and bar/lounge area of the building are identified as all part of one establishment, and that in the application for the license Hudson declared under penalty of perjury that East Coast owns or otherwise controls Roscoe’s Long Beach. 

The District court and Ninth Circuit also agreed that both East Coast and Hudson derived a direct financial benefit from the infringement.  Hudson testified that in the past he “grab[ed] a few dollars” out of East Coast.  Also, both courts found persuasive Plaintiff’s argument that the live jazz music encouraged guests to stay longer and order more cocktails. 

The defendants also challenged whether the copyrighted works were publicly performed on the grounds that the plaintiffs could not present any evidence supporting their claim other than the investigator’s report.  The court made quick work of this argument, noting that although the defendants challenged the credibility of the investigation report, they failed to submit any evidence to controvert the report. 

In today’s fast pace social media age, vicarious liability for copyright infringement is a risk business and their owners need to be aware of.  An employee who, without permission, uses images from the Internet for company material or uses some or all of a third party’s white paper for company marketing material all pose potential risk to the company and its individual owner for direct and vicarious liability.  Education and clear workplace policies are good first steps.  Treating third party claims of copyright infringement seriously and responding immediately is always recommended.  If East Coast and Hudson took seriously and responded to ASCAP’s early demand letters, the economic outcome of this matter would have been much different.