Posted on April 25, 2013 by David Oxenford

How a NY State Court Decision on Pre-1972 Sound Recordings Clouds the Safe Harbor Protections of Websites Featuring User Generated Content

This week, the Chairman of the US House of Representatives Judiciary Committee issued a press release stating that he intends that the Committee do a thorough reexamination of the Copyright Act, noting that new technologies stemming from digital media have upset many settled expectations in Copyright Law, and confused many issues. That this release was issued in the same week as a decision of New York’s Supreme Court, Appellate Division, First Department, on the obscure issue of pre-1972 sound recordings is perhaps appropriate, as this decision demonstrates how an obscure provision of the copyright act can have a fundamental effect on the functioning of many online media outlets – including essentially any outlet that allows user-generated content with audio. The Court’s ruling, which conflicts with a Federal Court’s decision on the same question, would essentially remove the safe harbor protection for sites that allow for the posting of user generated content – where that content contains any pre-1972 sound recordings which don’t fall within the protections of the Copyright Act. Let’s explore this decision and its ramifications in a little more depth.

As we have written before, an Internet service that allows users to post content to that service is exempt from any liability for that content under two statutes. The Digital Millennium Copyright Act insulates the service from any claims of copyright infringement contained in any of the user generated content, if the service has met several standards. These standards include the obligations for the service to take down the infringing material if given proper notice from the copyright holder. The Service cannot encourage the infringement or profit directly from the infringement itself, and it must register a contact person with the Copyright Office so that the copyright owner knows who to contact to provide the notice of the takedown. While the exact meaning of some of these provisions is subject to some debate (including debate in recent cases, including one that Viacom has been prosecuting against YouTube that we may address in a subsequent post), the general concept is well-established.

A second statute, Section 230 of the Communications Decency Act, essentially insulates the service from most other types of liability for the contents of user-generated content – including from liability for defamation and for liability under most other laws where civil liability can arise. However, the statute exempts intellectual property claims, which most services believed were covered by the DMCA safe harbor.

So what is the big deal with pre-1972 sound recordings that brought about this decision? In essence, the plaintiff in the case, Universal Music, successfully argued that infringement of pre-1972 sound recordings by user generated content was not excused by the DMCA, as pre-1972 sound recordings are not protected by Federal law, but instead by state laws. As we have written before, pre-1972 sound recordings first licensed in the United States are not protected by Federal Copyright Law, as those laws were not extended to cover sound recordings at all until 1972, and the revision in the law at that time specifically did not federalize prior sound recordings. The Copyright Office recently held a series of hearings and issued a report (which we summarized here) suggesting that pre-1972 sound recordings should be federalized, but Congress has not acted on that request.

So this New York Court looked at the Copyright Office’s report on pre-1972 sound recordings, and the report’s criticism of a Federal Court case involving a company called MP3tunes which determined that the DMCA did cover such recordings in its safe harbor.  The NY Court determined that the defendant in the case, music service Grooveshark and its parent company Escape Media Group, were not insulated from liability for infringing pre-1972 sound recordings posted by users of its site. The MP3tunes court had ruled to the contrary – finding that the copyright infringement covered by the DMCA safe harbor was not just Federal infringement, but infringement of any sort of copyright, including common law copyrights like those those governing pre-1972 sound recordings. To hold otherwise, said the Court in MP3tunes, would undermine the entire system established by the DMCA, as service providers would have to review each and every piece of user generated content to insure that it did not contain an unlicensed pre-1972 sound recording.

The NY Court concluded that the MP3tunes decision was wrong, reading the DMCA to reference other sections of Federal copyright law in connection with its definition of a copyright violation and a copyright infringement that came within the safe harbor. These references were enough, said the NY Court, to find that the clear language of the DMCA statute, and its statements that it did not undercut any other rights of copyright holders, meant that pre-1972 sound recordings were not covered by the safe harbor provisions, and that the MP3tunes decision was wrong.  The NY court felt that the including pre-1972 sound recordings in the safe harbor would undercut the rights of copyright holders to sue anyone for infringement which, if it was the intent of Congress to do so, should have been made explicitly clear.  The NY decision did not mention that, in fact, the copyright holders do still have a right to sue even if the safe harbor applied - though that right would be to sue the user who posted the infringing material, not the service who provided the technological means by which the posting could be done. 

The NY Court only briefly discussed the disruption that such a decision would bring to the online universe and all those services relying on the DMCA safe harbor. Essentially, the Court said that, if indeed Congress didn’t mean this result, it should clean up the language of the DMCA safe harbor, as the Copyright Office had suggested.

The NY Court did not discuss why the Section 230 exemption did not apply to the case (other cases have suggested that the “intellectual property” exemption of Section 230 is broader than the “copyright” definition of the DMCA, so that there may be a hole in the safety net otherwise provided to Internet service providers). In essence, the decision, if upheld and spread to other jurisdictions, could create a loophole in the safe harbor otherwise enjoyed by media sites that allow users to post content that the users create – threatening not only the major players, but many smaller media companies, including many broadcasters, who allow users to post audio and video productions that they create on the media outlet's website.

This is, of course, but one decision of one court – an intermediate state appellate court in New York. So this decision can be appealed to the New York Court of Appeals, and it will no doubt be debated in Federal Courts where most DMCA cases, and other cases of copyright infringement, arise. But the dispute between the courts on this fundamental issue for sites that feature user-generated content demonstrates just one of the many issues under Copyright laws that Congress may well have to review in its review of the Copyright Act.
Tags: , , , , , , , , , , ,
Posted on January 4, 2013 by David Oxenford

Full Text of Copyright Royalty Board Decision on Sirius XM and Music Choice Royalties Released - The Basics of the Decision

The full decision of the Copyright Royalty Board setting the royalty rates to be paid to SoundExchange by Sirius XM and Music Choice from 2013 through 2017 has now been released.  We wrote about the initial release of the summary of the decision before Christmas.  The final decision is interesting in many respects. First, it is the first decision to be released since two of the original three Copyright Royalty Judges left the bench. The decision, as released was actually two decisions – one signed by the new Chief Judge and an acting judge who filled in for Judge Wisniewski, the Board's economic expert, when he had to retire for health reasons. The second decision, reaching the same result but based on different reasoning, was signed by the Board's lone holdover, Judge Roberts, a long-time fixture at the Copyright Office before joining the Board. In addition, the decision seems to reject some premises that had long been used to justify royalty rates in other proceedings – and thus may give some insights on approaches to be used in the webcasting royalty proceeding that will begin in 2014 and conclude in 2015. The majority decision also, for the first time, gives at least some weight to direct licensing deals for the public performance of sound recordings by a noninteractive service. Finally, the decision provides explicitly for carve-outs from the established royalties for music on which no royalties need to be paid, including music that is directly licensed, and for pre-1972 sound recordings.

Before looking at the decision, it needs to be noted that these royalties are theoretically decided not just for Sirius XM and for Music Choice, but also for other services that fit into their class of service as defined by Sections 112 and 114 of the Copyright Act. Thus, the Music Choice decision applied theoretically to all "Preexisting Subscription Services" (or a "PSS") and the Sirius XM decision to all "preexisting satellite digital audio services" (or, as used in the decision, "SDARS" – satellite digital audio services). The "pre-existing language means that these services were either in existence or authorized by the FCC (for the SDARS services) at the time of the adoption of the Digital Millennium Copyright Act in 1998.  Of course, since 1998, all of Music Choices then-existing competitors in the cable audio business have gone out of business with one exception, and the second SDARS service – XM Radio – has merged with Sirius. So, effectively, these rates apply only to very few companies.

One importance of these rates is the fact that the DMCA decided that these preexisting services would use the 801(b) standard for the determination of royalty rates. We've written about this standard before. It is the one that is used by most other royalty decisions made by the Copyright Royalty Board (including the rates paid by the record companies under Section 115 of the Copyright Act for "mechanical royalties" for the reproduction of musical compositions used in producing CDs, downloads, and other sound recordings). It is also the rate that is proposed for use in the Internet Radio Fairness Act to set the royalties for Internet radio companies instead of the "willing buyer, willing seller" standard that is currently in use for webcasters. We will write more about the IRFA next week. While the difference in standard did not play a big part in the decision in this current CRB decision, it was analyzed and provided the framework for the decisions that were reached.

 

With that background, let's look at the rates. For PSS, essentially the audio services that accompany cable television service, the rates (as a percentage of gross revenue) were set as follows:

 

2013     8%

2014     8.5 %

2015     8.5%

2016     8.5%

2017     8.5%

 

This represents a very small increase from the 7.5% royalty rate that was in effect in 2012.  That rate had been reached as a result of a settlement between the parties in the last royalty proceeding. While we will go into more detail on the reasoning in the decision next week, the CRB essentially rejected SoundExchange's calls for the rate to be substantially increased (to 45% of revenue by the end of the term), and those of Music Choice asking that they be lowered. By rejecting the arguments of the parties, the Board looked to the last negotiated settlement as providing a benchmark royalty as to what reasonable parties would view as a marketplace rate, and proposed a modest increase as Music Choice plans more music options in the future.  On that basis, the Board came up with the rates that they adopted.

 

The Sirius XM decision involved more considerations, but essentially the same result. The majority of the Board rejected the proposals from SoundExchange to raise the rates.  It had proposed  starting at 12% of revenue in 2013 and ending at 20% in 2017.  The Board also rejected the Sirius proposals to lower the rates, currently at 8% of revenue, down to 5% based on evidence provided by direct licensing deals. Instead, the Board determined that the rates (as a percentage of the service's gross revenues - minus certain non-music related income) should be as follows:

 

2013   9%

2014   9.5%

2015   10%

2016   10.5%

2017   11%

 

The majority of the Board rejected much of the expert testimony provided by both parties, and used the parties' proposals to set the bounds of reasonableness for the rates (as the Sirius XM testimony suggested that their direct licensing deals were at 5-7% of revenue, the 7% was viewed as setting one bound of what was reasonable, with the 12% proposed by SoundExchange for the 2013 royalty forming another bound). We will write more about the details of the reasoning used to reach these decisions next week.

 

Another interesting aspect of the Sirius XM decision was the treatment given to the directly licensed sound recordings and the pre-1972 sound recordings. The Board agreed that the directly licensed sound recordings should be excluded from the royalties, as the licensing rights had already been obtained and paid for through the direct licenses. The Board also explicitly agreed, for the first time in any decision of which we are aware, that pre-1972 sound recordings also are not to be included in the revenue base, as the Federal sound recording copyright only applies to songs created in 1972 and after (with certain exceptions for earlier non-US recordings that are covered by US laws as a result of treaty obligations - see our discussion of this issue here and here).

 

While the Board recognized that the directly licensed sound recordings, and the pre-1972 sound recordings should be excluded, they had some trouble deciding how such an exclusion should be computed, as Sirius XM could not quantify the number of listeners to such recordings as used on their various channels. They obviously could count the number of times that such songs were played, but not how popular they were – how many people were listening to the songs each time they were played. To get to that number, the Board decided that a proxy should be used – the Internet streaming that Sirius XM does of its programming. The Board decided that Sirius XM could exclude from its payments a percentage equal to the percentage made up of the total number of performances streamed through its Internet service made up by the direct licensed and pre-1972 songs (a performance being one song streamed to one person – the manner in which most Internet radio services pay their royalties). So, if Sirius streamed 1 million performances in a given period, and of those 10,000 were streams of pre-1972 or directly licensed recordings, it could deduct 1% of the amount that it would otherwise owe SoundExchange.  This proxy was authorized only where Sirius XM streamed essentially the same programming that it provided on its satellite service.  If Sirius XM decided to stop streaming a channel, it was unclear how or if such an exclusion could be taken. 

 

There is much more to write about concerning the analysis of the competing cases.  We will look at those issues next week, and suggest how some of the analysis may be relevant to the Internet radio royalty issues that webcasters will be facing quite soon. 

 

Update - 1/5/2013 - The article initially indicated that only one PSS continued in business.  I have been informed that at least one other PSS is still in operation and qualifies for this rate, and the article has been corrected to reflect this.

 

Correction - 4/1/2013 - This article had incorrectly stated the rates for the SDARS services. 
Tags: , , , , , , , ,
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. 
Tags: , , , , ,
Posted on December 1, 2010 by David Oxenford

Copyright Office Extends the Comment Deadline in Its Inquiry Into Providing Federal Protection to Pre-1972 Sound Recordings

The Copyright Office today announced an extension of time for the fling of comments in its inquiry into the possibe extension of Federal Copyright protection to pre-1972 sound recordings.  We provided a details of that proceeding here.  Internet radio operators and other digital music services that play significant numbers of pre-1972 sound recordings (particularly recordings first made in the United States), may want to comment in this proceeding, as the statutory royalty paid to SoundExchange currently does not appear to cover such recordings, though, should the Copyright Office recommend the extension of the law to cover the recordings, and if Congress takes actions to amend the Copyright Act as a result of this suggestion, royalty obligations could be extended to these recordings.  At the request of the RIAA, the Copyright Office has extended the deadline for comment until January 31, 2011.  Reply comments are now due on March 2, 2011.

Tags: , , , , , , ,
Posted on October 31, 2010 by David Oxenford

Copyright Office Asks if Federal Protection Should be Extended to Pre-1972 Sound Recordings - What's the Impact on Internet Radio?

The Copyright Office has just released a Notice of Inquiry asking whether Federal protection should be extended to sound recordings recorded prior to 1972.  A sound recording is a song as recorded by a particular artist.  Sound recordings were first protected under Federal law in 1972.  Prior to that, unauthorized recordings or reproductions of an artist's recoding were policed under various state criminal and civil law.  While the Copyright Act has provided for the protection of pre-1972 sound recordings first registered in other countries, US sound recordings recorded prior to 1972, have not received Federal copyright protections.  Many have assumed that this also exempts pre-1972 sound recordings from royalty requirements under Section 114 of the Copyright Act - i.e. the royalties paid by Internet and satellite radio and other digital music providers under the statutory license.  How would a change in the law affect Internet radio operators?

That is one of the questions that is asked by the Notice of Inquiry.  Many Internet radio operators have not excluded pre-1972 recordings from royalty payments based on any exception that may exist for pre-1972 sound recordings, as the possibility has not been widely publicized.  Moreover, some copyright holders have suggested that the digitization of older songs may somehow bring pre-1972 recordings under the coverage of the Copyright Act, or that there may be state remedies that are somehow the equivalent of the Federal public performance right.  Others may just not want to go to the trouble of determining which copyrighted songs are subject to the Uruguay Round Agreements Act (making the non-US pre-1972 sound recordings subject to US Federal law).  The Copyright Office's Notice of Inquiry asks what impact the inclusion of pre-1972 sound recordings would have on many undertakings - including the archiving and restoration of sound recordings, and on the current benefits that copyright holders and others enjoy under state laws.  In addition, it asks about the benefits and issues that would arise under Section 114 of the Copyright Act - the section that sets out the statutory license under which most Internet radio companies operate.

This is a complicated issue, and Internet radio operators should carefully consider, with counsel, the issue of whether Section 114 royalties are due for pre-1972 sound recordings.  The issues raised in the Notice shows how complex this issue is, and the question of what to do with pre-1972 sound recordings cannot be resolved by the Copyright Office itself.  Any change in the Copyright Act to fully address the Federal laws that would apply to these sound recordings would have to be made by Congress.  The comments filed in this proceeding will help inform the record that will be created in connection with the Copyright Office making a recommendation to Congress about any suggested change in the law. Comments on this issue are due on December 20, with replies 30 days later. 
Tags: , , , , , ,
 
<--!
-->