The Copyright Office today issued an Order extending the dates for comments on the Notice of Proposed Rulemaking to determine if, in addition to royalties to ASCAP, BMI and SESAC for the public performance of a musical composition, a royalty is also be due for reproductions of the composition made by real-time webcasting such as
Broadcasters and other digital media companies have recently been focused on the royalties that are to be charged by the record labels for public performance of a sound recording in a digital transmission (under the Section 114 compulsory license administered by SoundExchange). In a Notice of Proposed Rulemaking issued this week, the Copyright Office tentatively concludes that there could be yet another royalty due for streaming – a royalty to be paid to music publishers for the reproductions of the musical compositions being made in the streaming process under Section 115 of the Copyright Act. This notice was released just as the Copyright Royalty Board is concluding its proceeding to determine the rates that are to be paid for the Section 115 royalty. While there have been reports of a settlement of some portions of that proceeding, the details of any settlement is not public, so whether it even contemplated noninteractive streaming as part of the agreement is unknown.
How did the Copyright Office reach its tentative conclusion? First, some background. The Office for years has been struggling with the question of just what the section 115 royalty covered. Traditionally, the royalty was paid by record companies to the music publishers for rights to use the compositions in the pressing of records. This was referred to as the "mechanical royalty" paid for the rights to reproduce and distribute the composition used in a making copies of a sound recording (a record, tape or CD). These copies were referred to as "phonorecords." However, in the digital world, things get more complicated, as there is not necessarily a tangible copy being made when there is a reproduction of a sound recording. Thus, Congress came up with the concept of a Digital Phonorecord Delivery (a "DPD") as essentially the equivalent of the tangible phonorecord. But just what is a DPD?
Once again, the extension of the sound recording performance royalty to broadcasters has become a hot topic in Washington. The subcommittee on Courts, the Internet and Intellectual Property of the House Judiciary Committee yesterday approved the bill introduced by Congressman Berman (about which we first reported here). That bill would include broadcasters in the Section 114 sound recoding royalty currently applicable to digital music users including Internet radio, satellite radio and cable radio. Under the bill, the Copyright Royalty Board would be charged with the responsibility of determining what a royalty would be using the "willing buyer, willing seller" standard. Following this subcommittee approval, the bill would next be considered by the full committee. To become law, the Committee and the full House of Representatives would have to approve it, and similar legislation would need to be enacted by the Senate. As the NAB has garnered the support of a majority of the members of the House on a non-binding resolution opposing the imposition of the royalty on broadcasters, and as there is not much time remaining in the legislative session before the election and the end of this Congress, the whole process may well have to start fresh in 2009 (bills have to be reintroduced after the end of each two-year Congressional session). Yet, with all of the controversy over the issue in recent weeks, it appears certain that the issue will arise again, so it is important to look at some of the recent action.
Two weeks ago, the House subcommittee held a hearing on the issue. Prior to the hearing, the MusicFirst Coalition (principally supported by the RIAA and the affiliated record companies as 50% of any royalty goes to the copyright holders who are usually the labels) had Nancy Sinatra and the Nitty Gritty Dirt Band making the rounds on Capitol Hill in support of the royalty. These appearances follow the precedent set in earlier Capitol Hill proceedings, where the Coalition has brought in niche or oldies artists to address Congress – not major popular current acts. The artists who have testified (who have included Judy Collins, Sam Moore, Lyle Lovett, and Alice Peacock) have argued that the additional income that they would receive from a performance royalty would supplement their incomes which, in some cases, has either never been great or has declined as the demand or ability to tour has declined. The argument is always made that the royalty will encourage musicians to produce their music – though it is rarely if ever claimed that music wouldn’t be made if the royalty is not adopted, as songs have been written and sung for time immemorial, well before any royalty existed, merely for the pleasure or to fulfill the need for self-expression. The question is not one of ensuring the availability of music, but instead it is one about who should get how much of whatever money is made, directly or indirectly, from the use of that music.
Website operators who allow the posting of user-generated content on their sites enjoy broad immunity from legal liability. This includes immunity from copyright violations if the site owner registers with the Copyright Office, does not encourage the copyright violations and takes down infringing content upon receiving notice from a copyright owner (see our post here for more information). There is also broad immunity from liability for other legal violations that may occur within user-generated content. In a recent case, involving the website Roommates.com, the US Court of Appeals determined that the immunity is broad, but not unlimited if the site is set up so as to elicit the improper conduct. A memo from attorneys in various Davis Wright Tremaine offices, which can be found here, provides details of the Roommates.com case and its implications.
In the case, suit was filed against the company, alleging violations of the Fair Housing Act, as the site had pull-down menus which allowed users to identify their sex, sexual orientation, and whether or not they had children. Including any of this information in a housing advertisement can lead to liability under the law. The Court found that, if this information had been volunteered by users acting on their own, the site owner would have no liability. But because the site had the drop-down menus that prompted the answers that were prohibited under the law, liability was found.
This week, the Copyright Royalty Board issued an Order denying a request by SoundExchange for rehearing of certain aspects of the decision released last month setting the royalties for satellite radio – XM and Sirius. These are the royalties for the use of sound recordings by these services on their digital systems. The decision, which set royalties at 6 to 8% of revenues of these services, and the denial of the rehearing motion, provide examples of how the CRB applies the 801(b) standard of the Copyright Act. In setting royalties, that standard assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music. The satellite radio decision sets a royalty far lower than that assessed on Internet radio – where the royalty is set using a "willing buyer, willing seller" standard looking only at the perceived economic value of the sound recording. That willing buyer, willing seller standard is also proposed for broadcast radio in the recently introduced performance royalty bills now pending before Congress (see our summary here) – so it could be expected that any royalty set using that standard would be higher than that set for satellite radio.
The initial Copyright Royalty Board decision, the full text of which is available here, first made a determination of how to compute the royalty. While both the satellite radio companies and SoundExchange initially suggested a percentage of revenue royalty given that satellite radio can’t count specific listeners, the parties later amended their proposals (after the Internet radio decision) to include a computation based on the frequency of a song’s play, to try to more closely approximate the Internet radio performance-based model (about which we wrote here). In addition to the suggestion that this metric more closely approximated that used in the Internet radio decision, the satellite radio companies suggested that a metric based on the songs played would give them the opportunity to adjust their use of music to reduce their royalty obligation. The satellite companies suggested that, if the royalty was too high, they could reduce the number of different songs that they played. While not specifically referenced in the decision, it is possible that they also considered the possibility of getting waivers from artists to encourage playing particular songs, which could further reduce a royalty based on a per song computation. The Board declined to provide that option, finding that the percentage of revenue option best took into account the business of the companies. The Board also suggested that it doubted that satellite radio really had the ability to lessen the use of music in reaction to a high royalty rate. (The Board does not discuss the possibility of royalty waivers, which are essentially worth nothing in a situation where the royalties are based on a percentage of a service’s entire revenue).