Sirius suffers setback in "The Turtles" suit

Thanks to the 1960s' rock band The Turtles, Sirius XM (SIRI) could soon be forced to pay royalties on music it's been using for free after being on the losing side of a federal judge's ruling. The decision concerns a gap between federal and state copyright laws, with federal law applying only to recordings made after 1972. Various states, however, offer protections extending back further than 1972.

Following federal law, the New York City-based satellite radio provider has never paid royalties for songs recorded before 1972, which account for about 10 percent to 15 percent of the tunes it plays on its commercial-free stations, according to an attorney suing Sirius on behalf of Turtles members Mark Volman and long-time collaborator Howard Kaylan. The duo sued based on California law, which doesn't have the 1972 limitation.

Michael Huppe of SoundExchange, a digital performance-rights organization, said nonpayment of pre-1972 recordings has cost record labels and artists about $60 million.

However, Judge Philip Gutierrez of the U.S. District Court in Los Angeles ruled this week that Sirius had infringed on recordings made by Volman and Kaylan, also known as Flo & Eddie, because they owned and controlled the copyrights. A spokesman for Sirius declined to comment. The ruling could also have an effect on other music services such as Pandora (P).

And it could cast a shadow over Sirius shares, which have long attracted interest from short-sellers, who profit when a stock price decline. Despite a 1.4 percent rise on Wednesday, the shares have barely budged this year as the broader S&P 500 index has posted an 8 percent gain.

Henry Gradstein, a partner with Gradstein & Marzanno in Los Angeles, which is representing The Turtles, said representatives of other musicians have expressed interest in the case, though he declined to provide specifics. He was clearly pleased by ruling, saying, "The court's decision was brilliant."

Volman and Kaylan didn't write The Turtles' biggest hit, 1967's "Happy Together," but they own the song's master recordings, and California law states that that owners of master recordings have exclusive performance rights.

Though Gutierrez' decision technically applies only to California, it has national implications because Sirius isn't able to block songs from being heard in a particular state, according to Gradstein.

"It kind of feels like David and Goliath," said Volman in an interview. "Artists need to be looked after, not be taken advantaged of. Hopefully, this will open up the doors for lots of other artists." He added: "You hate seeing these things because they showcase the underbelly of the music business."

The Turtles aren't strangers to the courtroom. In 1989, Flo & Eddie sued the hip-hop band De La Soul for illegally sampling one of their songs, setting a precedent that still applies today.

Volman and Kaylan have had a storied career. After recording The Turtles' signature hit "Happy Together," they were members of Frank Zappa's Mothers of Invention and sang background on classic songs such as T. Rex's "Get in On (Bang an Gong)" and Bruce Springsteen's "Hungry Heart." According to Volman, they perform between 50 and 70 shows annually.

The Sirius case isn't closed yet. A trial to set damages is still to be held, and an appeal of Gutierrez' ruling from Sirius wouldn't be a surprise.

Editor's note: The headline of this post was updated on Sept. 26, 2014.