The question of when a digital music service is “interactive” and therefore requires direct negotiations with a copyright holder in order to secure permission to use a sound recording is a difficult one that has been debated since the Digital Millennium Copyright Act was adopted in 1998. In a decision of the Second Circuit Court of Appeals released today, upholding a jury decision in 2007, the Court concluded that Yahoo’s Launchcast service (now operated by CBS) is not so “interactive” as to take it outside of the statutory royalty despite the fact that the service does customize its music offerings to the tastes of individual listeners. To reach its decision, the Court went through an extensive analysis of both the history of the sound recording copyright and of the details of the criteria used by Launchcast to select music for a stream sent to a specific user. By determining that the service is not interactive, the service need only pay the SoundExchange statutory royalty to secure permission to use all legally recorded and publicly released music.  Had the service been found to be interactive within the meaning of the statute, the service would have to negotiate with each sound recording copyright holder for each and every song that it wanted to use on its service to get specific rights to use each song – potentially resulting in hundreds of negotiations and undoubtedly higher fees than those paid under the statutory license.

The issue in the case turned on an analysis of the DMCA’s definition of an interactive service.  The statute defines an interactive service as one where a user can select a specific song or “receive a transmission of a program specially created for the recipient.” It is clear that Launchcast did not allow a user to request and hear a specific song.  But, by specifying a genre of music, and by specifying favorite artists and songs and rating other songs played by the service, a listener could influence the music that was provided to it.  Was this ability to influence the music sufficient to make it an “interactive service” and thus take it out of the coverage of the statutory royalty?

Continue Reading Court of Appeals Determines that Launchcast is Not an Interactive Service – Thus Not Needing Direct Licenses From the Record Labels