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Just when Internet music companies were starting to understand one set of royalties applicable to the use of music on the Internet through the controversy over the Copyright Royalty board decision on royalties for the public performance of sound recordings in a digital delivery system, the Copyright Office held a hearing on Friday to discuss an entirely different royalty – the "mechanical" royalty for the use of the "musical work" in making a "phonorecord."  In plain English, the copyright holder in the publishing rights in a musical composition (the underlying words and music in a song) is entitled to a royalty when a copy of a song using that composition is made.  While that doesn’t sound too complicated, when copies are made in the digital transmission of music over the Internet (and even in other digital media), all sorts of questions arise.  And in the conversations on Friday, questions were raised as to whether the obligation to pay a royalty for making a digital copy even applied to the streaming of a song on the Internet or possibly even the playing of a song on an HD Radio station.  These stations already pay (to ASCAP, BMI and SESAC) for the public performance of a musical composition, but the mechanical royalty is for a different right, and is collected by a different group, and the question being raised was whether a different royalty is also due when music is used a digital context.  This is also different than the SoundExchange royalty that is paid for the public performance of a sound recording (a particular song as recorded by a particular artist).

The Copyright Office held this Roundtable to update the record in a proceeding begun by a Notice of Inquiry issued in 2001 to try to determine how to apply in a digital world the mechanical royalty and the compulsory license for that royalty under Section 115 of the Copyright Act.  That section applies to the use of a composition in the making of a record or CD.  The artist or record company would have to pay the publishing company a flat fee per copy to obtain the rights to use the underlying song.  That fee is currently about 9 cents per copy, though the Copyright Royalty Board is is in the midst of a proceeding that is to determine whether that royalty should be changed.  When applied to the making of a physical copy, that concept is not hard to understand (though, as set forth below, it is not easy to administer).  But, in a digital world, questions arise as to when the obligation to pay a royalty arises.Continue Reading Copyright Office Holds a Roundtable Discussion of the Mechanical Royalty – Another Confusing Royalty for the Use of Music on the Internet

In a ruling released last week, a US District Court Judge issued a ruling finding that a download of a recorded musical work does not give rise to a "public performance" requiring a payment to ASCAP, BMI or SESAC.  If this decision is upheld on appeal, it could mean that one less fee would have to be paid in connection with on-demand downloads – which would also affect podcasts and video downloads made available by broadcasters on their websites.  However, there are many issues that must be understood about this ruling, so broadcasters should not impetuously rush to provide downloads and podcasts without first securing the bundle of rights necessary for such performances.

First, it is important to understand the issue that was presented in this case.  The case did not involve streaming of programming – so it has no effect on Internet radio royalties.  It involves only downloads – where a copy of a specific work is downloaded to a single consumer’s computer at the request of that consumer.  This is what happens when a consumer buys a song from iTunes, or downloads a podcast made available by a broadcaster.  There is no question that, to provide such a download or podcast containing music, a service needs to get permission from the copyright holder in the "sound recording," the song as recorded by a particular artist.  This is typically received from the record company which holds the copyright.  In addition, there is a requirement that the rights to the composition must be obtained for purposes of the making of the making of a "reproduction" and a "distribution" of the underlying composition.  This is typically obtained from the publishing company or a clearinghouse such as the Harry Fox agency.  A service that provides downlaods of music can alternatively pay a statutory royalty for the composition, though that requires following a somewhat cumbersome process of filings set out by the Copyright Office and requiring specific notice to the copyright holder in the publication.Continue Reading District Court Finds No Public Performance In Download – Could Affect Fees on Podcasts and Video Downloads