I'll put my attorney hat on for this one. In general the U.S. Constitution's patent and copyright clause is interpreted as giving the federal government exclusive jurisdiction in the field of copyright and therefore preempting any state laws. Thus, for the most part, State copyright laws are unconstitutional on the grounds that the states lack the power to legislate in this area.

However, beginning in the 1970's, the U.S. Supreme Court became very favorably disposed to intellectual property claims and began, for example, to permit states to protect ideas that were not original enough to earn a patent to be protected by state trade secret laws. Unfair competition laws also began to have a wider scope and were likely held to apply in some states to such matters as appropriating for private works that had not yet been copyrighted. In general, "legitimate" commercial interests came to be protected even if they did not fit the copyright mold and the federal courts were not holding state court rulings in this area to be preempted.

Prior to the 1970's, copyright laws only protected the composers of a musical work. They did not protect the recorded performance of the work. There was also a compulsory royalty arrangement which still stands which provides that although a composer might control the first recording of a song, after that anybody could record it without specific permission from the composer, as long as they paid the compulsory royalty for each record sold. Some tried to exploit this and record piracy was born. Thus, if you pressed a bunch of singles of the Beatles singing "I Want to Hold Your Hand," and paid the compulsory royalty to Lennon & McCartney (but nothing to EMI or the Beatles as performers), you had a legitimate argument that you were violating no copyright law (because there was no copyright protecting the actual recording by EMI or the actual performance by the Beatles) and that no one could do anything about it because federal law preempted any state effort to do something about it by creating a copyright type of protection for the actual recording and/or performance.

The record companies then convinced California to try to do something about it, and the law quoted above was passed to try and push the envelope and provide explicit state protection for an area that Congress was refusing to regulate. I don't remember what became of the resulting litigation in which the "pirates" (kind of like today's MP3 crowd) challenged the law, mostly because Congress passed a major amendment to the copyright law shortly after California passed its law and the new federal statute explicitly protected the recordings themselves (and the contracts between the performers and the recording companies protected (in theory) the performers). That is when the practice of a p in a circle began, to indicate that the "phonograph" was itself protected by copyright. That is also why many older recordings were re-released in new packaging to qualify as a new recording and get the federal copyright protection with a p-in-circle date.

As to the shutdown of someone's enterprise, there is no way that a company willing to pay a royalty can be shut down for playing old recordings. If extortionate rates are demanded, and the enforcers (ASCAP, BMI & the Harry Fox Agency) generally do not seek exorbitant rates, then one may go to court to have the court set the rate. If one insists upon playing the recordings while paying no royalty, then a court will shut you down.

Many folkies and MP3 fans seem to think that there is something immoral about copyright owners demanding royalties from them for their use of another's creative efforts. They're entitled to their opinions, and some copyright protectors are excessive, but in general the law works pretty well to provide some income for creative artists while permitting others to exploit their works at reasonable rates.

-Bennet D. Zurofsky, Esq. Reitman Parsonnet, P.C. Newark, NJ