On Tuesday, a New York state appellate court made a curious decision in a matter being litigated between Grooveshark parent company Escape Media Group, Inc. and UMG Recordings, Inc. The court ruled that due to an oddity in copyright law, the Digital Millennium Copyright Act does not apply to songs that were licensed under state law before February 15, 1972. As such, for these recordings, Grooveshark is not eligible for what is known as safe harbor—an immunity to liability if users upload copyrighted works without the website's knowledge.

As a website that allows users to upload their recordings, Grooveshark's business model depends on the DMCA. Users upload songs on Grooveshark and are warned about uploading copyrighted material. If a rights holder discovers that a user has uploaded a copyrighted song, the rights holder notifies Grooveshark. As long as the website takes the song down quickly enough, Grooveshark avoids being held responsible for the infringement.

But an anomaly in copyright law is throwing a wrench in that system. In 1971, Congress overhauled copyright laws, making most protection a federal matter. However, recordings copyrighted before February 15, 1972 would remain under the purview of the common law and statues of the individual states. The new federal copyright prescriptions noted that “any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this Title until 2067.”

With this in mind, UMG brought litigation against Grooveshark saying that the DMCA, a federal act, does not apply to these recordings under common law. So the website is still liable for copyright infringement if a user uploads, say, Chuck Berry's “Johnny B. Goode” (written in 1958) without Grooveshark's knowledge.

A 2010 filing by UMG in the case says that these titles under state copyright protection include works from “Buddy Holly, The Carpenters, Cat Stevens, Chuck Berry, The Jackson Five, The Mamas and the Papas, Marvin Gaye, The Supremes, The Temptations, and The Who.”

While a New York District court initially ruled in Escape Media and Grooveshark's favor, the New York appellate court took a very different view. “Initially, it is clear to us that the DMCA, if interpreted in the manner favored by defendant, would directly violate section 301(c) of the Copyright Act,” the court's decision read. It went on:

Had the DMCA never been enacted, there would be no question that UMG could sue defendant in New York state courts to enforce its copyright in the pre-1972 recordings, as soon as it learned that one of the recordings had been posted on Grooveshark. However, were the DMCA to apply as defendant believes, that right to immediately commence an action would be eliminated. Indeed, the only remedy available to UMG would be service of a takedown notice on defendant. This is, at best, a limitation on UMG’s rights, and an implicit modification of the plain language of section 301(c). The word “limit” in 301(c) is unqualified, so defendant’s argument that the DMCA does not contradict that section because UMG still retains the right to exploit its copyrights, to license them, and to create derivative works, is without merit. Any material limitation, especially the elimination of the right to assert a common-law infringement claim, is violative of section 301(c) of the Copyright Act.M

Naturally, Grooveshark argued “that if UMG’s interpretation of the DMCA were adopted, that act would be eviscerated,” as the point of the act was to promote efficiency for businesses that host user-generated content. As Forbes writer (and occasional Ars contributor) Eric Goldman points out, Grooveshark “has no easy way to distinguish which user-submitted sound recordings are covered by federal copyright versus state copyright. However, its legal liability depends [on] this difference. … Without universal protection from the DMCA’s safe harbor 'notice-and-takedown' scheme, Grooveshark may be required to pre-screen user uploads to assess whether the file is a pre-1972 sound recording or not, and then it may have to handle those files differently.”

While this ruling has big implications for Grooveshark and other small businesses that host user-generated content, it likely won't affect YouTube as far as UMG is concerned. As Ars reported in December 2011, YouTube and UMG have a private contract that allows UMG to take down its own copyrighted content as it sees fit.