Posted on January 5, 2012 by David Oxenford

Copyright Royalty Board Starts Proceeding to Set Royalty Rates for Background Music Services - Reminder to Webcasters To Start Thinking of the Next Royalty Case

The Copyright Royalty Board has just announced that it is accepting petitions to participate in the next proceeding to set the royalty rates to be paid for the ephemeral copies made by "business establishment services" in connection with any digital transmission of sound recordings.  Business establishment services are essentially background music services who provide music to businesses to be played in stores, restaurants, elevators, and other establishments.  Under the Copyright laws, businesses are not required to pay a public performance royalty under Section 114 for the use of sound recordings (they do pay ASCAP, BMI and SESAC for the public performance of musical compositions).  But the law (Section 112) does require that these services pay for the ephemeral copies made in the transmission (e.g. server copies).  In the last proceeding, settled in 2008, SoundExchange and participating services reached an agreement to pay a fee of the greater of $10,000 or 10% of revenues.  Parties who want to participate in this new proceeding to possibly adjust this rate must file a petition with the Copyright Royalty Board, showing their interest in the proceeding, by February 2.  The CRB will later this year announce a settlement window, hoping that the parties who file notices of intent to participate can work out a deal.  If no deal is reached, direct cases will be due in the fall, and a hearing will be held next year, with the rates to be set before the current rates expire at the end of 2013.

This Notice reminds webcasters that all sound recording performance rates are temporary ones, that have to be readjusted every 5 years.  Webcasters will be filing similar notices to participate in the next proceeding in January 2014, with new rates to be set before the end of 2015.  We'll write soon about the issues that are likely to come up in that proceeding.  But webcasters should be making their plans now to be ready to put on a good case as to why the current rates should be adjusted in the 2015 proceeding.

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Posted on January 2, 2012 by David Oxenford

Copyright Office Report Recommends Federalization of Pre-1972 Sound Recordings - Possible Implications For Music Royalties and User-Generated Content

The Copyright Office last week issued its Report to Congress on pre-1972 sound recordings (with an Executive Summary), addressing whether to bring these recordings under Federal law.  As we wrote last year when the Copyright Office solicited comments on the issues raised by this report, sound recordings (i.e. aural recordings embodied in some fixed form like a CD, record or digital file) created in the United States prior to 1972 are not protected under Federal copyright law.  Instead, any protections accorded to these sound recordings are under state laws.  Congress, at the request of a number of archivist and music library groups, asked that the Copyright Office review the issues that would be raised by bringing these sound recordings under Federal law.  Some archivists and librarians feared that, in preserving old recordings, they could run afoul of state copyright laws, and that a unified set of rules under Federal law might be easier to follow.  Why is this issue more broadly important to the music community?  For internet radio station operators, it is because the proposals to Federalize all such recordings could have an impact on digital performance royalties (as there does not appear to be any public performance right in sound recordings under state laws and, under current law, these recordings would not be covered under the SoundExchange royalties that most noninteractive services play).  The Report is also significant in that it raises questions about copyright laws dealing with user-generated content, specifically whether the DMCA safe harbor provisions protecting the operators of Internet service companies from copyright liability for the content posted by third parties apply to pre-1972 sound recordings.

This is only a report to Congress, and such reports have no binding impact.  Instead, they merely set out the position of the authors of the report from the Copyright Office.  Such reports are also cited as evidence in court cases as to what the Office believes the current state of the law to be.  The Office has written a number of reports over the years making suggestions about how copyrights should be administered and, given the complexity of copyright law and the competing interests affected by any revisions to the laws, many of their proposals have never been implemented.  This report suggests that pre-1972 sound recordings be brought under Federal laws.  Specifically, the report suggests that current copyright holders get protection for most pre-1972 works until 2067 (when state law protections are to run out under the current law, allowing the works to move into the public domain).  The protections would be accorded to works that are used by the copyright holder (sold at some reasonable price) and registered with the Copyright Office at some point after a law implementing its proposals became effective.  Works from prior to 1923 would be subject to a similar use and registration process, but would only get 25 years of additional protection.  Seemingly, protections for works that are not registered would pass into the public domain after the applicable registration period expires.  For some webcasting companies, this change could have an immediate impact.

Some webcasting companies have taken the position that there is no obligation to pay SoundExchange performance royalties for pre-1972 sound recordings, as these recordings do not fall under Federal law, and the various states have not specifically adopted any sort of performance royalty obligation (and, even if such a state right could somewhere be found, there is no agreement with SoundExchange to act as a collective for any such rights).  Many smaller webcasters may have continued to pay for these recordings as it may take too much trouble to figure out which recordings are outside the SoundExchange royalty structure (and it is particularly difficult as recordings from prior to 1972 first released outside the US are already covered under Federal law).  Others may be concerned about claims by the record labels that the digitization of pre-1972 works created a new copyrighted work subject to Federal copyright law.  However, other webcasting services have concluded that these works are not subject to any SoundExchange fees and reduced their royalty obligations accordingly. The Copyright Office report did not dispute the conclusion that no SoundExchange royalty is due on pre-1972 sound recordings, and did not conclude that there is any obligation under state law to pay a performance royalty, but nevertheless suggested that the Federalization would benefit webcasting services by clearing up any ambiguity as to whether they may owe some performance royalty, or any royalties for the ephemeral copies made in the digital transmission process (as we've written before, the ephemeral copies made in the transmission process are included under Section 112 of the Copyright Act in the royalties paid to SoundExchange for post-1972 sound recordings). 

On another issue, the Report goes out of its way to suggest that safe harbor protections of Section 512 of the Copyright Act for User Generated Content do not apply to pre-1972 sound recordings.  The Report takes the position that the DMCA safe harbor is one that applies only to copyrights under Federal law, and since pre-1972 sound recordings are not covered under Federal law, then the safe harbor doesn't apply to them.  The Report takes issue with a recent US District Court decision in a case involving MP3Tunes that took exactly to opposite position - finding that the safe harbor was intended to protect website owners from liability for content uploaded by its users, and that excluding pre-1972 sound recordings from its coverage would be contrary to that purpose.  The Report did not take a position as to whether such user-generated content would be covered under Section 230 of the Communications Decency Act (which provides a similar safe harbor to an Internet service provider for most user-generated content under other laws, but which specifically excludes intellectual property issues from its scope). Because of its position that Section 512 does not currently cover pre-1972 sound recordings, the Copyright Office saw the extension of Federal law to these recordings as protecting Internet service providers by extending Section 512 protections to any user-generated uses of these recordings. 

The Report even expresses some sympathy for the position taken by copyright holders that the current process for the safe harbor rules should be re-examined as they may be too cumbersome for copyright holders to use.  When copyright holders discover user-generated content that infringes on their rights, they must provide take-down notices to site owners asking that it be removed from the site.  Some copyright holders contend that sites with large amounts of content (like YouTube) and the number of sites hosting such content across the web make the notice and take down process too difficult and time-consuming to provide real protection for copyrighted material.  This is an issue much debated in other circles (see for instance the contentious debate over SOPA) that we'll tackle in a future post.  But it was interesting that the Copyright Office addressed this point in a report having little to do with that debate.

As we said in comments we filed for a client in the matter, the objective of this proceeding was both to protect copyright holders and to make it easier to preserve and disseminate pre-1972 sound recordings.  Does the proposed Federalization accomplish this, or does it provide more disincentive for the use of many of these recordings by webcasters and others who would have to pay performance royalties for content that currently have no such royalties attached?  Content creators prior to 1972 did not have an expectation of a sound recording performance royalty (which wasn't established in the US until 1995), and certainly the adoption of such a right can't (without the use of a time machine) create any financial incentive for the creation of more pre-1972 recordings.  This report is likely to be just one volley set in a series of debates over copyrights that is occurring in Congress and the Courts now, and will likely continue over the coming years as old and new media struggle to adopt to the implications of these increasingly digital media world. 
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Posted on July 21, 2011 by David Oxenford

Beware - Music Use in Podcasts, Downloads and On-Demand Streams are Not Covered By Your SoundExchange Royalties

Broadcasters beware - podcasts with music may be dangerous to your economic health.  In recent weeks, I've come upon more than one incident where a broadcaster was providing podcasts containing music on their website, or allowing listeners to download or stream on-demand some new, hot song.  I've even seen certain articles in the trade press advocating that stations do podcasts of their morning shows, or otherwise provide some sort of programming containing music on their websites in a manner in which the listener can listen over and over again to the same program or song.  Broadcasters need to know that they are asking for trouble when they provide services like podcasts, downloads and on-demand streams containing music without getting specific permission from copyright holders to do so, as these uses are not covered by the SoundExchange royalties paid for webcasting, nor (in most cases) by your ASCAP, BMI and SESAC royalties.  

The royalties paid to SoundExchange are for the right to publicly perform sound recordings in a noninteractive manner.  In other words, they only cover streams where the user cannot get a specific song when they want it, and where listeners do not know the order in which songs will be played.  ASCAP, BMI and SESAC (the "PROs") also cover public performances, but of the underlying musical compositions (the words and music of the song, as opposed to its recording by a particular singer or band).  By contrast, “podcasts,” ( and here I mean an on-demand program that can be downloaded onto a digital device for later replay, and which can also usually be played immediately on someone’s computer) are much like downloads - and involve a different right in music - the right to reproduce and distribute the music.  The rights of reproduction and distribution are different from the public performance right, and the permission to make reproductions and distributions are granted by different groups than are the public performance right.  SoundExchange and the PROs have nothing to do with granting this reproduction and distribution right (with the limited exception of ephemeral rights in streaming granted through the SoundExchange royalty - a concept too technical to be discussed here, and one that does not affect this warning.  But, if you are interested in these rights, you can see our article that discussed ephemeral rights in a bit more detail, here).  Podcasts, downloads and on-demand streams require a specific grant of rights from the copyright holders of the sound recordings and the musical compositions for each piece of music that is being used. 

Rights to the sound recording of most popular recorded music will typically come from the record label. And, for these sorts of on-demand uses, the rights to most recorded music will not be cheap and easy to obtain. It will come easily only for specific songs that the labels want to promote – sometimes referred to as “podcast safe” music.  This music is usually a song from a new artist, or an alternate take of a new song by an established artist, meant to be used to promote a new release.  Getting rights to the full catalog of music typically played by a music intensive radio station will require a negotiation with each record label and the payment of significant money - the kind of negotiation that has delayed the introduction of services like Spotify in the US for so long.

Rights to reproduction and distribution of the musical composition typically come from the music publishing company (or sometimes music publishing companies where there is more than one writer of a song).  These licenses—known as “mechanical licenses”— can be obtained through a statutory license, setting out payments to the copyright holders of any musical work that has been publicly released, but only if some strict procedures set out by law are followed.   These rights can also be obtained directly from the publishers or songwriters or, in many instances, through the Harry Fox Agency, which licenses compositions on behalf of many copyright holders. There are also a number of private companies that will help in getting the necessary licenses to use the musical composition.   Depending on the use that you have in mind, the record companies may themselves have already cleared the right to the musical composition, and that right will come with the right to the sound recording when you negotiate for that right.  But needless to say, it is not an easy process that will allow routine podcasts or downloads of music programming. 

Even the podcast of the performance of a local artist, with his permission, may require a mechanical license from the songwriter or music publisher if the artist has been singing “cover” songs.  So be careful when recording local artists - you may think that you are getting their music royalty free, and you may be avoiding the sound recording royalty and a negotiation with a record label, but you may still have the musical composition to deal with if the local performer has not written their own songs.

There are lots of other caveats and exceptions that may apply in certain circumstances.  But these don't allow the routine podcast of music programs or the other types of uses described above.   So be careful - or you may have the music industry knocking at your door demanding an unexpected payment.  For more information about these topics, check out our Advisory on the Basics of Music Licensing in Digital Media. 
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Posted on October 16, 2010 by David Oxenford

David Oxenford Conducts Webinar for State Broadcast Associations on Legal Issues in the Digital Media World - Including a Discussion of Ephemeral Copies of Sound Recordings

Dave Oxenford this week conducted a seminar on legal issues facing broadcasters in their digital media efforts.  The seminar was organized by the Michigan Association of Broadcasters, and originated before a group of broadcasters in Lansing, but was webcast live to broadcasters in ten other states.  Dave addressed a variety of legal issues for broadcasters in connection with their website operations and other digital media platforms.  These issues included a discussion of service marks and copyrights, employment matters, music on websites, the use of social media, privacy, and sponsorship disclosure.  The slides used in the Lansing presentation are available here.    During the seminar, Dave also mentioned that stations with websites featuring user-generated content, to help insulate themselves from copyright infringement that might occur in the content posted to their website by their audience, should take advantage of the registration with the Copyright Office that may provide safe harbor protection if a station follows the rules and takes down offending content when identified by a copyright holder.  The Copyright Office instructions for registration can be found here.   

One of the most common issues that arise with radio station websites is the streaming of their programming.  In August, Dave gave a presentation to the Texas Association of Broadcasters providing  a step-by-step guide to streaming issues, with a summary of the royalty rates paid by different types of streaming companies.  That summary to Internet Radio issues is available here.  Additional information about use of music on the Internet can be found in Davis Wright Tremaine's Guide to The Basics of Music Licensing in a Digital Age.   Dave also presented this seminar at the Connecticut Broadcasters Association's Annual Convention in Hartford on October 14.

During the webinar, one of the issues that came up in the discussion of music use on the Internet was the provisions of Section 112 of the Copyright Act that allow broadcasters to make "ephemeral copies" of sound recordings to facilitate a broadcast or webcast transmission, but which require that any such copies be kept for no more than 6 months.  As discussed at the seminar, agreements entered into last year by the NAB and major record labels and A2IM, the association that represents that major independent labels, in connection with the NAB/SoundExchange settlement of the dispute over Internet radio royalties, contained provisions that agreed to waive that 6 month limit on the retention of ephemeral copies for broadcasters who signed the settlement agreement on webcasting royalties.  More details about the waiver of this aspect of the ephemeral royalty issue, and about the waivers of the performance complement which would otherwise restrict programming options of webcasters (including how many songs in a row by the same artist could be played) are contained in this post on our blog summarizing the waivers entered into in connection with the NAB/SoundExchange agreement.

The associations which co-sponsored the webinar were the state broadcast associations of the following states:  Illinois, Kansas, Pennsylvania, Missouri, Nebraska, Nevada, North Dakota, Oregon, Tennessee and Indiana. 

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Posted on March 29, 2009 by David Oxenford

With April 2 Webcasting Election Due for Broadcasters - A Look at the Record Label Waivers of the Performance Complement

As we have written, by April 2, broadcasters who are streaming need to file with SoundExchange a written election in order to take advantage of the SoundExchange-NAB settlement.  For broadcasters who make the election, the settlement agreement will set Internet radio royalty rates through 2015.  One aspect of this agreement that has not received much attention is the waiver from the major record labels of certain aspects of the performance complement that dictates how webcasters can use music and remain within the limits of the statutory license.  When Section 114 of the Copyright Act, the section that created the performance royalty in sound recordings, was first written in the 1990s, there were limits placed on the number of songs from the same CD that could be played in a row, or within a three hour period, as well as limits on the pre-announcing of when songs were played.  These limits were placed seemingly to make it more difficult for listeners to copy songs, or for Internet radio stations to become a substitute for music sales.  In conjunction with the NAB-SoundExchange settlement, certain aspects of these rules were waived by the 4 major record labels and by A2IM, the association representing most of the major independent labels.  These waivers which, for antitrust reasons, were entered into with each label independently, have not been published in the Federal Register or elsewhere.  But I have had the opportunity to review these agreements and, as broadcasters will get the benefit of the agreements, I can provide some information about the provisions of those agreements.

First, it is important to note that each of the 5 agreements is slightly different.  In particular, one has slightly more restrictive terms on a few issues.  To prevent having to review each song that a station is playing to determine which label it is on, and which restrictions apply, it seems to me that a station has to live up to the most restrictive of the terms.  In particular, the agreements generally provide for a waiver of the requirement that stations have in text, on their website, the name of the song, album and artist of a song that is being streamed, so that the listener can easily identify the song.  While most of the labels have agreed to waive that requirement for broadcasters - one label has agreed to waive only the requirement that the album name be identified in text - thus still requiring that the song and artist name be provided.  To me, no station is going to go to the trouble of providing that information for only the songs of one label - so effectively this sets the floor for identifying all songs played by the station and streamed on the Internet.

The agreements otherwise agree to waive the requirements that a webcaster play:

  • No more than 3 songs in a row by the same artist
  • Not more than 4 songs by same artist in a 3 hour period
  • No more than 2 songs from same CD in a row

However, these provisions are waived only insofar as the broadcaster does not "depart materially from today's range of typical over-the-air radio programming practices," citing specifically the practices of having DJs talk between songs and stations running commercials and PSAs between songs.  Presumably, if a station were to go all music, with no talk or no commercials for a long period, that would not be within the typical practices of over-the-air radio stations.  These waiver agreements also cover HD-2 stations, so stations should be careful that their formatics on these stations which are being streamed do not so totally depart from normal broadcast practices in such a way as to violate these waiver provisions.  (Note these waiver agreements do not cover Internet-only channels that a broadcaster may program on its website).

The waivers also do not allow the streaming of an entire CD.  In fact, the most restrictive of the provisions limit a broadcaster to streaming no more than half the songs from an album or CD at any time within a 3 hour period.  So the "6 album sides at 6" type of promotion may be permissible, as long as the station does not then play another song from the same CD in a proximate time period.

The agreements also provide for a waiver of a provision that many broadcasters are probably not even aware exists - a requirement under Section 112 of the Copyright Act that does not allow "ephemeral copies" of recordings to be kept for more than 6 months.  An ephemeral copy is a temporary copy of a sound recording made to facilitate a transmission.  For instance, a copy of songs from a CD made by a broadcaster to put the music into a station's hard drive music system would be an ephemeral copy that normally could not be retained for more than 6 months without negotiating a license with the copyright holders.  These waivers eliminate that six month limitation.

These waivers are different from the agreement with SoundExchange which covers all copyright holders.   The waivers cover only those labels who have signed a waiver agreement.  But, as the four major labels and the association representing the major independent labels have signed, most artists played by most radio stations will be covered by these agreements. 

Broadcasters who are planning to sign on to the NAB-SoundExchange agreement will have the extra benefit of these waiver agreements.  Broadcasters should carefully review these agreements and take advantage of them - an advantage that may give them rights on the Internet that other webcasters do not have.
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Posted on February 3, 2008 by David Oxenford

Copyright Royalty Board Requests Comments on Business Establishment Service Royalty Rate

Last week, the Copyright Royalty Board published an order seeking comments on a proposed settlement establishing the royalties for "Business Establishment Services."  Essentially, this is the royalty paid by a service which digitally delivers music to businesses to be played in stores, restaurants, retail establishments, offices and similar establishments (sometimes referred to as "background" or "elevator" music, though it comes in many formats and flavors, and may sometime include the rebroadcast of programming produced for other digital services).  The proposed settlement would essentially carry the current rates forward for the period 2009-2013.  These rates require the payment of 10% of a services revenue (essentially what they are paid by the businesses for the delivery of the music) with a minimum annual payment of $10,000.

Some might wonder how a royalty of 10% royalty can be justified - and why it shouldn't set some sort of precedent for the Internet radio services about which we have written so much here.  Once again, as we've written before, the Digital Millennium Copyright Act sets different standards for different kinds of music use.  For many consumer-oriented services (like satellite radio, digital cable radio and Internet radio), there are different standards used to determine the royalty rate.  For Business Establishment Services, it's not the standard that is different - it's the royalty itself.  Under the DMCA, there is no performance royalty paid either by the business or the service provider.  Instead, under the statute, the royalty is paid only for the "ephemeral copies" - those transitory copies made in the digital transmission process.  That is different than the royalty for all of the other digital services, where fees are paid for both the performance (under Section 114 of the Copyright Act) and the ephemeral copies (under Section 112).

To some extent, the Business Establishment royalty reveals other inconsistencies in the law.  In the recent decisions on Internet radio and satellite radio, the CRB determined that the ephemeral copies had no value, allocating all of the royalty to the rights under Section 114.  This is consistent with other statements made by the Copyright Office suggesting that ephemeral copies, which are inherent in the transmission process but otherwise are of no real use to the consumer, have no value.  But, here, the royalty is valued at a full 10% of the revenue of the service.

Also, the law establishes that there is no performance right in the sound recording.  However, as in the over-the-air broadcast services, there is a royalty that must be paid for the use of the copyright in the composition.  Thus, the stores and other business establishments themselves have to pay royalties to ASCAP, BMI and SESAC for the performance of copyrighted works (though the services often pay that royalty on behalf of the user). 

Comments on the proposed royalty are due on February 29.
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