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.