Grooveshark is one of many online music streaming services that enables users to upload and share song files. However, an infringement case filed against the company by UMG Recordings recently unveiled an important discrepancy between state and federal copyright law that could spell trouble for digital business models.

The Digital Millennium Copyright Act has traditionally provided Grooveshark with a safe harbor clause that effectively immunizes the company from liabilities associated with infringing content posted by its user community. A New York appellate court ruled this week that DMCA provisions do not cover pre-1972 sound recordings, however, as that was the year legislators decided to unify copyright management under federal codes. As a result, songs appearing on Grooveshark that were originally composed prior to February 15, 1972 are still beholden to state statutes in the eyes of the court.

According to Santa Clara University professor Eric Goldman, this verdict poses several problems. First and foremost, it runs directly counter to a 2011 federal court decision involving Capital Records and MP3 Tunes which asserted that state copyrighted works were covered by DMCA protections. Amid this confusion, companies like Grooveshark that rely on user-generated sound recordings have no clear or easy way to identify whether an uploaded file is covered by state or federal copyright. As such, innovative business strategies may be temporarily paralyzed amid this legal confusion.