Copyright Issues in Online Music Delivery

Congressional research reportJun 4, 2002

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Order Code RL31029

Report for Congress

Received through the CRS Web

Online Music Delivery

Updated June 4, 2002

Robin Jeweler

Legislative Attorney

American Law Division

Congressional Research Service ˜ The Library of Congress

Summary

Early in the 107th Congress, both the House and Senate Judiciary Committees

held hearings on online music. The Committees’ goals were to obtain information

about the interaction of technology and business surrounding the development of

online music services.

The multiplicity of licensing requirements led several online services to call for

simplified music licensing on the Internet through “compulsory licensing.” When

the law creates a compulsory license, parties thereto need not negotiate its availability

or terms. When statutory requirements are satisfied, the license is available at

statutory rates.

Although there are several types of “compulsory” or “statutory” licenses created

by the U.S. copyright laws, 17 U.S.C. § 101 et seq., there are not, at this time, any

legislative proposals to create a general compulsory license for transmission of music

over the Internet.

Two relatively recent laws, however, the Digital Performance Right in Sound

Recordings Act (DPRA), which was amended by the Digital Millennium Copyright

Act (DMCA), presently control several aspects of compulsory licensing necessary for

digital music transmission. 17 U.S.C. § 114 establishes statutory licenses for the

public performance of qualified digital audio transmissions. 17 U.S.C. § 112

establishes a statutory license for ephemeral copies of digital transmissions. 17

U.S.C. § 115 creates a compulsory license, referred to as a “mechanical” license, for

reproductions of songs and digital phonorecord deliveries over the Internet.

Implementation of these provisions is difficult, and often contentious, given their

complexity and the challenge of applying them to new and evolving technologies and

businesses.

This report gives a brief overview of the basic elements of music licensing and

surveys recent developments in the U.S. Copyright Office’s implementation of the

DMCA. It notes the Copyright Office’s DMCA § 104 Report and its interpretation

of compulsory licensing provisions under 17 U.S.C. §§ 114, 112, and 115. It reviews

preliminary and final rulemaking decisions concerning webcasting, including

statutory royalty rates, notice and record keeping requirements, interactive services,

and digital phonorecord deliveries. Finally, it surveys legislation focusing on online

music introduced in the 107th Congress.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background: The Complexities of Music Licensing . . . . . . . . . . . . . . 3

Statutory licenses for public performance of digital audio transmissions

under 17 U.S.C. §§ 114, 112. and 115 . . . . . . . . . . . . . . . . . . . . . . 5

Compulsory or “mechanical” licenses for reproduction and distribution

rights under 17 U.S.C. § 115 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Recent and ongoing interpretations by the U.S. Copyright Office . . . . 9

Legislation introduced in the 107th Congress . . . . . . . . . . . . . . . . . . . . 14

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Introduction. At the height of its popularity, Napster captured the public’s

fancy. For many, especially young people and college students, Napster became

synonymous with online music. It popularized music delivery over the Internet; it

demonstrated the ease and convenience with which consumers could select songs

from vast music repertories; and, it made what had been the unrealized notion of

completely customized, personal music CDs a reality. In copyright infringement

litigation of widespread interest, the federal courts ruled that Napster violated the

being freely exchanged.1

But the wide-spread popularity of Napster made its mark. As a result, the

avowed goal of those within and without the music industry is to see the development

of convenient, meaningful, and lawful access to services on the Internet.2

Early in the 107th Congress, both the House and the Senate held hearings on the

legal and technical obstacles to streamlined and expanded online music delivery. On

April 3, 2001, the Senate Judiciary Committee held a hearing entitled “Online

Entertainment: Coming Soon to a Digital Device Near You.”3 The Committee took

testimony from representatives of the music industry and online music services. The

Committee’s aim was to elicit information about the interaction of technology and

business surrounding the development of online music delivery, not to formulate new

legislation to regulate it.

Among those who testified were Hank Berry, Interim CEO of Napster, and

Robin Richards, President of MP3.com. Both companies were sued successfully by

the music industry for copyright infringement. Attempting to comply with the court’s

orders, Mr. Berry addressed the difficulty of obtaining information on copyright

ownership rights and the general complexities of music licensing.

Robin Richards of MP3.com discussed the difficulties obtaining copyright

clearance faced by his company’s music storage “locker” service, MyMP3.com.

A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001). Press accounts indicate

that Napster was recently acquired by Bertelsmann AG and is likely to file for

reorganization under chapter 11 of the U.S. Bankruptcy Code. See, Nick Wingfield, Napster

Gets a Reprieve – Bertelsmann Deal Won’t Solve All of Music Site’s Woes, WALL STREET

JOURNAL EUROPE, May 21, 2002 available at PROQUEST, Newspaper Library.

to Content Protection, 61 BNA PATENT, TRADEMARK & COPYRIGHT J. 625 (Apr. 27, 2001).

The House Subcommittee on Courts, the Internet and Intellectual Property held an oversight

hearing entitled “Music on the Internet” on May 17, 2001.

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MyMP3.com is designed to allow consumers to use Internet-connected devices to

listen to CDs that they have previously purchased. With respect to Internet music

transmissions, Mr. Richards referred to several different copyright authorizations

required:

[A]lthough we disagreed with the interpretation of the copyright law put

forward by the record labels and publishers, our desire to get our service

back up and running led us to enter into very costly agreements covering

all of their claims. We have agreed to pay for converting the CDs that we

purchase into MP3 format. We have agreed to pay for performing both the

sound recordings and the songs contained on those CDs. And we have

even agreed to pay the publishers for the temporary, momentary “buffer”

copy that automatically is made (and deleted) each time someone listens

to their own music out of their MyMP3.com locker. Yet, today, nearly six

months after signing the last of these agreements, we haven’t been able to

obtain all of the licenses that the copyright owners insist we must have

before we can fully relaunch the My.MP3.com service.4

The multiplicity of licensing requirements for online music led several business

consumers and online music services to call for simplified music licensing on the

Internet through “compulsory licensing.” The recording industry expressed their

concerns over the necessity of a secure means to transmit music electronically; and

members of the general public (and the Congress) expressed their impatience with

the pace of development for online music delivery.

When the law creates a compulsory license, parties thereto need not negotiate

its availability or terms. When statutory requirements are satisfied, a compulsory

license is available at statutory rates. Many copyright owners, and the U.S.

particularly with respect to valuing rights in a cyberspace.5 They contend that

determining the commercial market value of the property is best established through

contract negotiation, not regulatory rate-making.

Although there are several types of “compulsory” or “statutory” licenses created

by U.S. copyright law, 17 U.S.C. § 101 et seq., there are not, at this time, any

legislative proposals to create a general compulsory license for transmission of music

over the Internet.

Two laws, the Digital Performance Right in Sound Recordings Act (DPRA),6

which was amended by the Digital Millennium Copyright Act (DMCA),7 control

several aspects of compulsory licensing necessary for digital music transmission. 17

Statement of Robin Richards before the

[www.senate.gov/~judiciary/te04030/rr.htm].

Senate

Judiciary

Committee

Leave Webcasting to the Marketplace Government, Industry Witnesses Tell Panel, 60 BNA

PATENT, TRADEMARK & COPYRIGHT J. 164 (June 23, 2000).

P.L. 104-39 (Nov. 1, 1995).

P.L. 105-304 (Oct. 28, 1998).

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U.S.C. § 114 establishes statutory licenses for the public performance of digital audio

transmissions by qualified licensees. 17 U.S.C. § 112 establishes a license for the

“ephemeral” or temporary copies necessary to effect a digital audio transmission. 17

U.S.C. § 115 creates a compulsory license, referred to as a “mechanical” license, for

reproductions of songs and digital phonorecord deliveries over the Internet.

Implementation of these provisions is proving difficult given their complexity and

the challenge of applying them to new and evolving technologies and businesses.

Indeed testimony before the Senate Judiciary Committee evidenced a lack of

consensus over many of the basic components of copyright rights relative to online

music transmission. For example, parties disagree over the “new” statutory language

of digital audio transmission and how traditional, protected activities such as

“reproduction” and “public performance”should apply in an Internet environment.

This report gives a brief overview of the basic elements of music licensing and

surveys recent developments in the U.S. Copyright Office’s interpretation of

compulsory licensing provisions under 17 U.S.C. §§ 112, 114 and 115.

Background: The Complexities of Music Licensing. While almost all

people acknowledge an intellectual property ownership interest in those who

contribute their creative talents to the world of music, few outside the music industry

appreciate the legal complexity of copyright ownership interests and responsibilities.

The Copyright Act confers discrete exclusive rights on different types of expressive

media.

The owner of a musical composition (which is the underlying song on a sound

recording) has the exclusive right to do or to authorize:

! reproduction of the copyrighted work;

! preparation of derivative works based on the copyrighted work;

! distribution of copies to the public by sale, rental, lease or lending;

! performance of the work publicly; and,

! display of the work publicly.8

The owners of rights in sound recordings have an exclusive right to control

reproduction and distribution of their recordings, but they do not have the same

public performance right as composers. In the case of sound recordings, the public

performance right is qualified and limited. It covers

! performance of the work publicly by means of a digital audio transmission.9

17 U.S.C. § 106(1)-(5).

17 U.S.C. § 106(6).

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Cole Porter, Frank Sinatra, and “I’ve Got You Under My Skin”.

Different exclusive rights attach to different uses and expressions of copyrighted

work. The convergence of copyright interests in a sound recording is a prime

illustration. An oft-cited example is that of Cole Porter’s composition, the song I’ve

Got You Under My Skin.10 The copyright to a song is most often owned by the

composer or a music publisher, in this case, Warner/Chappell Music, Inc.11 In order

to record a version of I’ve Got You Under My Skin, permission must be obtained

from Warner/Chappell. Many performers have recorded different versions of it.

The copyright in a sound recording is most often owned by the recording artist

or the recording studio. Frank Sinatra recorded a version, the copyright to which is

owned by Reprise Records. Now assume that one wished to use the Frank Sinatra

recording. How is it to be used? One way might be a radio station’s over-the-air

(analogue) broadcast of it. Since a broadcast is essentially a “public performance,”

the station would obtain permission, i.e., pay a royalty to Warner/Chappell. But,

because sound recording copyright holders do not have control over “public

performances” of the recording, the radio station need not pay royalties to Reprise

Records. Assume, however, that the radio station wishes to reproduce and distribute

copies of Frank Sinatra’s recording of I’ve Got You Under My Skin for promotional

purposes. The composer/music publisher has the right to control the reproduction

and distribution of the underlying composition (the song). And the sound recording

recording. Hence, permission would be needed from both rights holders. Obtaining

permission to use a song is a separate undertaking from permission to use a sound

recording.12

In addition to what can be a complicated matter of identifying rights holders,

one seeking permission to use copyrighted music may negotiate a wide variety of

different types of licensing agreements. Again, the license will reflect which of the

rights holder’s exclusive rights are implicated depending upon the nature of the

intended use.13 In most instances, the negotiation of permission – that is, the

licensing agreement – is a private, contractual matter between the parties. By

contrast, when the law creates a compulsory or statutory license, no negotiation is

AL KOHN & BOB KOHN, KOHN ON MUSIC LICENSING 11 (3rd ed. 2002). See also, Kohn,

A Primer on the Law of Webcasting and Digital Musical Delivery, 20 ENT. L. REPTR. 7

(1998).

Many writers and music publishers are represented by “performance rights societies” such

as the American Society of Composers, Authors and Publishers (ASCAP), the Broadcast

Music, Inc. (BMI), or the Society of European State Authors and Composers (SESAC).

2 MELVILLE NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 8.22[A][3][b]: “Either

[music or sound recordings] may be used as applicable, by compulsory license, by direct

license, by statutory exemption, by virtue of the fair use doctrine, or because of its public

domain status, in any permutation or combination. The point is that each exercise must be

undertaken independently.”

The variety of music licenses is extensive, including, for example, print licenses,

mechanical licenses, electrical transcription licenses, synchronization licenses, videogram

licenses, musical product licenses, performance licenses, dramatic performance licenses, and

grand performance licenses. KOHN ON MUSIC LICENSING, supra at 444-448.

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necessary. The user, i.e., the licensee, simply complies with the statutory conditions

to use the work and pays the statutory rate or royalty for the benefit of the rights

holder.

With respect to online music delivery, however, the relative newness of both the

technology and the law itself suggests the absence of an interpretative consensus

among affected parties, including the courts, about the precise copyright law

principles that will govern online music transmission.

Statutory licenses for public performance of digital audio

transmissions under 17 U.S.C. §§ 114, 112. and 115.

Statutory Licensing for Performance Rights for Digital Audio

Transmissions, 17 U.S.C. § 114. When Congress adopted the DPRA in 1995,

it created a new but limited public performance right for digital audio transmissions.

Rather than add a broad, comprehensive new performance right similar to that

enjoyed by composers, Congress created many exemptions to the performance right

of sound recording owners.

Among the exemptions to a sound recording owner’s exclusive right under

106(6), pursuant to § 114(d)(1) are:

! a nonsubscription broadcast transmission, i.e., traditional over-the-air radio

and television broadcasts and qualified retransmission; and

! internal transmissions by a business on or around its premises, including “on-

hold music” transmissions via telephone to a caller waiting for a response.14

These services are exempt from the performance right and do not need to obtain a

license to pay royalties for digital transmissions.

Congress also provided for statutory licensing for some, but not all, digital

transmissions.15 The nature of the digital public performance right requires the

licensing parties to distinguish between “subscription” and “interactive” digital

transmissions. Subscription services involve controlled transmissions that are limited

to paid recipients, while an interactive service enables a member of the public to

request a particular sound recording.16

The legislative history of the DPRA expresses congressional concern that

interactive services had the greatest potential to impact traditional record sales.

17 U.S.C. § 114(d)(1)(C)(iv). S.Rept. 104-128, 104th Congress, 1st Sess. 23 (1995).

See, 2 NIMMER ON COPYRIGHT § 8.22[B][3].

17 U.S.C. § 114(d)(2), (f).

17 U.S.C. § 114(j)(7) & (14). Although subscription and interactive services may be

related, some guidelines for determining what a service is are established by the statute. The

ability of an individual to request that a particular sound recording be performed for the

public at large, for example, or for members of a subscription service, does not render it an

interactive one if the song is not performed within one hour of the request.

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Therefore, copyright owners have the exclusive right to control the performance of

their work on interactive media through negotiated contracts.17 Thus, subscription

transmissions may qualify for compulsory licensing, but interactive subscription

services must be “voluntarily licensed.”18

Statutory license for webcasting: eligible nonsubscription and

subscription transmissions. Webcasters whose activities are not exempt under

§ 114(d), and are likewise nonsubscription and noninteractive, may qualify for a

statutory, i.e., a compulsory, license. They are referred to as “eligible

nonsubscription transmissions.”19

Unless a subscription service is exempt from the public performance right, it

too may qualify for a statutory license if detailed requirements are complied with.

Among the requirements for a subscription service’s statutory license is adherence

to the “sound recording performance complement.”20 The sound recording

performance complement is a complex protocol, adapted from traditional radio

broadcast practice, which limits the number of selections a subscription service can

play from any one phonorecord by the same featured artist. The goal of the protocol

is to prevent a pre-announced play schedule that facilitates copying of albums, or the

work of individual performers, in their entirety.

Limitation on exclusive licenses for interactive services. Although

the DPRA requires negotiated licensing for interactive services, it does limit the

duration of an exclusive license for the performance of a sound recording to prevent

limiting opportunities for public performances.21

Statutory Licensing for Ephemeral Recordings of Digital Audio

Transmissions, 17 U.S.C. § 112. Ephemeral recordings are reproductions of a

work produced solely for the purpose of its transmission by an entity legally entitled

to publicly perform the work. Section 114 is concerned with the public performance

right for digitally transmitted sound recordings. Section 112 authorizes a compulsory

license to enable those who webcast a sound recording to make a temporary or

S.Rept. 104-128 at 16.

2 NIMMER ON COPYRIGHT § 8.22[A][1].

17 U.S.C. § 114(j)(6) defines an “eligible nonsubscription transmission” as:

a noninteractive nonsubscription digital audio transmission not exempt under

subsection (d)(1) that is made as part of a service that provides audio

programming consisting, in whole or in part, of performances of sound

recordings, including retransmissions of broadcast transmissions, if the primary

purpose of the service is to provide to the public such audio or other

entertainment programming, and the primary purpose of the service is not to sell,

advertise, or promote particular products or services other than sound recordings,

live concerts, or other music-related events.

17 U.S.C. § 114(d)(2)(B)(i).

17 U.S.C. § 114(d)(3).

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“ephemeral” reproduction or copy of the recording, which is generally stored in the

hard drive of computers, i.e., servers, in order to facilitate the performance. Thus, a

statutory license under § 114 applies to a public performance while the statutory

license under § 112(e) applies to a reproduction. The latter covers only those

ephemeral recordings of phonorecords used for transmissions in connection with a

statutory license under § 114(d) or (f).22

Compulsory or “mechanical” licenses for reproduction and

distribution rights under 17 U.S.C. § 115. The mechanical license in copyright

law was enacted in 1909 in response to a U.S. Supreme Court decision which held

that “mechanical” devices such as piano rolls were not copies of musical

compositions. Hence, to reproduce a song on a piano roll or on a phonograph record

would not result in an infringement of the composer’s copyright.23 Acting to overturn

the Court’s decision, to reverse its impact on owners of copyright interests in

musical compositions, and to thwart a potential music monopoly by a large

manufacturer of piano rolls, Congress created the compulsory license provision that

is currently embodied in 17 U.S.C. § 115. The license protects the composer’s right

to control reproductions of the work but permits the recording of a song by a thirdparty on “mechanical” media like a piano roll or record, hence the term “mechanical

license.”24 In its present form, it essentially allows reproduction of music that may

be heard with the aid of a mechanical device.25 The mechanical license is validly

obtained only after a song has been initially distributed publicly under the authority

of the copyright owner. The license is authorized when the licensee’s primary

purpose is to distribute the work publicly for private use.

The §115 mechanical license compensates the rights holder in the musical

composition for reproduction and distribution rights; it does not authorize the

duplication of a sound recording.26 Permission to duplicate a sound recording must

be obtained from whomever owns the copyright, the recording artist or record studio.

Digital Phonorecord Deliveries. In 1995, the DPRA amended §115 to include

“digital phonorecord deliveries” or DPDs.27 DPDs were included in the mechanical

“In any particular case, acts implicating the reproduction or performances rights must be

considered separately under sections 112[e] or 114, as applicable, and any other relevant

provisions under the Copyright Act.” H. Comm. on the Judiciary, 105th Cong., SECTION-BYSECTION ANALYSIS OF H.R. 2281 AS PASSED BY THE UNITED STATES HOUSE OF

REPRESENTATIVES ON AUG. 4, 1998, 52 (Comm. Print 1998).

White-Smith Music Pub. Co. v. Apollo Co. 209 U.S. 1 (1908).

2 NIMMER ON COPYRIGHT § 8.04[A].

KOHN ON MUSIC LICENSING, supra at 677.

17 U.S.C. § 115(a)(1), “A person may not obtain a compulsory license for the use of the

work in the making of phonorecords duplicating a sound recording fixed by another, unless

(i) such sound recording was fixed lawfully; and (ii) the making of the phonorecords was

authorized by the owner of copyright in the sound recording... .”

A DPD is defined as “each individual delivery of a phonorecord by digital transmission

of a sound recording which results in a specifically identifiable reproduction by or for any

(continued...)

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license to compensate composers for an anticipated offset in revenues from record

sales as songs become more frequently transmitted digitally:

Among other things, [§ 115] is intended to confirm and clarify the right of

musical work and sound recording copyright owners to be protected against

infringement when phonorecords embodying their works are delivered to

consumers by means of transmissions rather than by means of phonorecord retail

sales. The intention in extending the mechanical compulsory license to digital

phonorecord deliveries is to maintain and reaffirm the mechanical rights of

songwriters and music publishers as new technologies permit phonorecords to

be delivered by wire or over the airwaves rather than by the traditional making

and distribution of records, cassettes and CD's. The intention is not to substitute

for or duplicate performance rights in musical works, but rather to maintain

mechanical royalty income and performance rights income for writers and music

publishers.28

Hence, a mechanical license is available: to compensate the rights holder in the

musical work when the licensee makes or distributes a phonorecord of a new

version of the work; to compensate the musical composition rights holder when the

licensee has obtained permission from a sound recording holder to duplicate the

sound recording; and, to compensate the rights holder in the musical work for a DPD

transmission of the work.

To summarize, there are many copyright requirements for both permission and

licensing which must be observed before music can legally be transmitted over the

Internet. These include:

! permission from the rights holder in the musical composition to duplicate,

distribute, and/or perform the song publicly;

! permission from the rights holder in the sound recording to duplicate and

distribute it and/or to perform it publicly via a digital audio transmission.

In most cases and contexts, parties will negotiate licensing agreements.

However, statutory and compulsory licenses are available in limited circumstances:

! a third party may obtain a compulsory license to compensate composers/

music publishers when the licensee mechanically reproduces a song or

transmits it digitally as a DPD;

! with respect to the public performance of a digitally transmitted sound

recording, some transmissions are subject to a digital performance right, some

are exempt, and yet others are entitled to the statutory license to compensate

the sound recording rights holder.

(...continued)

transmission recipient of a phonorecord of that sound recording, regardless of whether the

digital transmission is also a public performance of the sound recording... .” 17 U.S.C. §

115(d).

S.Rept. 104-128 at 37.

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Recent and ongoing interpretations by the U.S. Copyright Office.

Recent actions and determinations by the U.S. Copyright Office illustrate the

complexity of many of the legal issues affecting online music delivery, particularly

with respect to the implementation of requirements under the DMCA.

The DMCA § 104 Report: Recommendations regarding “incidental”

copies and performances. Pursuant to § 104 of the DMCA, Congress directed

the Copyright Office and the Department of Commerce to evaluate the effects of the

DMCA on the development of electronic commerce and the relationship between

existing and emergent technologies in connection with two provisions of the

doctrine, which, in essence, allows the purchaser of a traditional, i.e., nondigital

book, copy, or phonorecord, to dispose of it without being in violation of the

the owner’s right of reproduction with respect to specific uses of a computer

program.

In August of 2001, the Copyright Office issued the “DMCA Section 104

Report.”29 Although the Report’s general conclusions are beyond the scope of this

report, one of its recommendations relates directly to webcasting. The Report

considers the unsettled copyright status of “incidental” or buffer copies necessitated

by digital streaming. Also discussed are digital performances that are incidental to

digital music downloads. Technically, discrete reproduction(s) or public

performance(s) takes place in connection with streaming or a music download. The

question is whether these activities should be authorized within a single grant of

permission to the licensee to stream or download, or should each incidental

transaction be separately licensed and compensable?

The Report analyzes the issue and recommends “that Congress enact legislation

amending the Copyright Act to preclude any liability with respect to temporary buffer

copies that are incidental to a licensed digital transmission of a public performance

of a sound recording and any underlying musical work.”30 Likewise, it concludes that

“no liability should result under U.S. law from a technical ‘performance’ that takes

place in the course of a [music] download.”31

The Copyright Office acknowledges the close, analogous relationship between

temporary buffer copies and ephemeral copies addressed in 17 U.S.C. § 112:

As with temporary buffer copies, ephemeral recordings are made for the sole

purpose of carrying out a transmission. If they are used strictly in accordance

U.S. Copyright Office, DMCA SECTION 104 REPORT: A REPORT OF THE REGISTER OF

COPYRIGHTS PURSUANT TO § 104 OF THE DIGITAL MILLENNIUM COPYRIGHT ACT. (August

2001). The Report in its entirety is available on the Copyright Office’s website at

[http://www.copyright.gov/reports/studies/dmca/dmca_study.html].

Id. at 142-143.

Id. at 148.

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with the restrictions set forth in section 112, they have no economic value

independent of the public performance that they enable.32

Hence, the Office favors repeal of § 112(e) and “the adoption of an appropriatelycrafted ephemeral recording exemption.”33

Webcasting: Are radio broadcasters exempt from the digital

performance right when they simultaneously stream over the Internet?

As discussed earlier, the DPRA’s public performance right for digital transmissions

of sound recordings exempts “nonsubscription broadcast transmissions.”34 Radio

broadcasters assert that this exemption covers FCC-licensed broadcasters who stream

their radio programming over the Internet.

The question, which arose in the course of rate adjustment proceedings for the

§ 114 statutory license, is whether FCC-licensed broadcasters’ simultaneous

retransmission of radio broadcasts via the Internet are exempt from the limited sound

recording performance right.

On December 11, 2000 the Copyright Office issued a final rule holding that,

with the exception of over-the-air digital radio broadcasts, all other digital

transmissions, including streaming over the Internet or “webcasting,” are subject to

statutory licensing under § 114(d)(2).35 Broadcasters have challenged the rule,

unsuccessfully to date.36

DMCA-based rulemaking relating to webcasting.

Rulemaking to establish statutory royalty rates for public performance

and ephemeral copies of digital sound recordings. The compulsory license

provisions of 17 U.S.C. §§ 114 and 112 necessitate establishing statutory rates.

Rates are generally set for two year periods. They are established by the Librarian of

Congress in consultation with the Copyright Office. The Copyright Office

consolidated the proceedings for the first two terms for post-DMCA webcasting

rates, 1998-2001.

The ratemaking scheme is intended to create consensus and/or support an

informed market-based rate: First, affected parties (potential licensors and licensees)

are subject to a six-month period to engage in voluntary negotiations.37 In the

absence of consensus and if requested by a party, owners and users may submit to

Id. at 144. (Footnotes omitted.)

Id., fn. 434.

17 U.S.C. § 114(d)(1)(A).

Public Performance of Sound Recordings: Definition of a Service, 65 Fed. Reg. 77292

(December 11, 2000)(to be codified at 37 C.F.R. § 201.35). The notice is also available on

the Copyright Office’s web site, www.copyright.gov.

Bonneville International Corp. v. Peters, 153 F. Supp.2d 763 (E.D.Pa. 2001).

17 U.S.C. §§ 112(e), 114(f).

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and be bound by compulsory arbitration conducted pursuant to the Copyright Act.38

Arbitration is an adversarial proceeding held before a three-person panel, the

CARP proceedings, the parties are able to agree to an industry-wide settlement, the

Librarian may adopt the proposed rate in the absence of an objection by an affected

party.39

Although the Copyright Office has announced the initiation of a voluntary

negotiation period for statutory royalty rates for webcasters for a future two-year

cycle, 2003-2004,40 rates have not yet been finalized for the previous terms, 19982002. Those rates were subject to a contentious arbitration before the CARP. The

Report of the Copyright Arbitration Royalty Panel entitled “In re rate setting for

Digital Performance Right in Sound Recordings and Ephemeral Recordings” was

issued on February 20, 2002.41 On May 21, 2002, the Librarian, upon the

recommendation of the Copyright Office, issued an order rejecting the CARP’s

proposed rates.42 The Librarian will implement rates by June 20, 2002. Aggrieved

parties bound by the rates may then bring suit in the U.S. Court of Appeals for the

D.C. Circuit.43

Rulemaking to establish notice and record keeping requirements for

public performance of digital sound recordings. The compulsory licenses

created by 17 U.S.C. § § 114 and 112 also require that licensees give copyright

owners notice and maintain records of use.44 These requirements facilitate delivery

initiated a rulemaking to establish new requirements for notice and record keeping

that will impact webcasters.45 Statutory licensee webcasters would be required to

keep and report detailed information on the sound recordings performed through

“Intended Playlists.” The RIAA has proposed the collection of additional

information in a “Listener’s Log” and “Ephemeral Phonorecord Log.” Comments

and feedback from webcasters indicate the absence of consensus over the appropriate

17 U.S.C. §§ 801-803.

37 C.F.R. § 251.63 (2001).

Digital Performance Right in Sound Recordings and Ephemeral Recordings, 67 Fed. Reg.

4472 (January 30, 2002),available on the Copyright Office’s web site, [www.copyright.gov].

The report, in its entirety, is posted online at the U.S. Copyright Office’s website at

[http://www.loc.gov/copyright/carp/webcasting_rates.pdf].

In the Matter of Digital Performance Right in Sound Recordings and Ephemeral

Recordings, Docket No. 2000-9 CARP DTRA 1&2, available online at the U.S. Copyright

Office website, [http://www.copyright.gov/carp/webcasting-rates-order.html].

For more information on the CARP’s recommendations, see, CRS Report RS21200,

See, 37 C.F.R. §§ 201.35-.36 (2001).

Notice and Recordkeeping for Use of Sound Recordings under Statutory License, 67 Fed.

Reg. (February 7, 2002), available on the Copyright Office’s web site, [www.copyright.gov].

CRS-12

level of detail and manner of record keeping. Many webcasters claim that the

proposed record keeping requirements are too burdensome and impracticable.46

Rulemaking to determine whether a service is interactive. On the same

day as the Copyright Office issued its rule finding broadcasters nonexempt from the

public performance right when webcasting, it denied a petition filed by the Digital

Media Association (DiMA) to initiate a rulemaking to determine when an online

music delivery service is “interactive.”47 Interactive services must conduct armslength negotiations with a sound recording copyright owner for a license before

making a digital transmission that constitutes a public performance. Non-interactive

services may qualify for a statutory license under § 114(d). Although the term

“interactive service” is statutorily defined,48 the Copyright Office noted that neither

the statutory definition nor the legislative history “draws a bright line delineating just

how much input a member of the public may have upon the basic programming of

a service.”49 DiMA sought a rulemaking to attempt to clarify that some expression

of consumer preference in audio digital transmissions will not necessarily render a

service “interactive” and thus ineligible for a statutory license. The Copyright Office

found that a rulemaking is not necessary or appropriate because “[i]n light of the

rapidly changing business models emerging in today’s digital marketplace, no rule

can accurately draw the line demarcating the limits between an interactive service

and a noninteractive service.”50

Application of 17 U.S.C. § 115 to certain digital music services:

Rulemaking to consider what constitutes an “incidental” DPD . On March 9,

2001, the Copyright Office issued a “Notice of Inquiry” requesting public comment

on whether it should conduct a rulemaking on the question of what constitutes an

“incidental” DPD in order to determine royalties for a mechanical license.51 When

Congress amended § 115 to include DPDs, it made a statutory reference to – but did

not define – “incidental” DPDs. Specifically, when a Copyright Arbitration Royalty

Panel (CARP) is convened to establish a statutory royalty rate for the mechanical

license, it is directed to “distinguish between (i) digital phonorecord deliveries where

the reproduction or distribution of a phonorecord is incidental to the transmission

which constitutes the digital phonorecord delivery, and (ii) digital phonorecord

deliveries in general.”52

To date, establishing rates for incidental DPDs has been deferred. However, a

wide variety of issues for online music delivery are implicated as the Copyright

Roundtable Reveals Wide Disagreement on Webcasting Compulsory Licensing, 64 BNA

65 Fed. Reg. 77330 (Dec. 11, 2000). The notice is also available on the Copyright Office’s

web site at [ www.copyright.gov].

17 U.S.C. § 114(j)(4).

65 Fed. Reg. at 77331.

Id. at 77332.

66 Fed. Reg. 14099 (2001).

17 U.S.C. § 115(c)(3)(D).

CRS-13

Office considers how best to address the issue. Indeed, the question “what is an

incidental DPD?” arguably transcends mere copyright law and enters the realm of the

metaphysical. As the Copyright Office’s Notice of Inquiry observes:

[T]here is considerable interest in the streaming of recorded music. Streaming

necessarily involves a making of a number of copies of the musical work – or

portions of the work – along the transmission path to accomplish the delivery of

the work. RIAA [Recording Industry of America] and MP3.com relate that

copies are made by the computer servers that deliver the musical work (variously

referred to as “server,” “root,” “encoded,” or “cache” copies), and additional

copies are made by the receiving computer to better facilitate the actual

performance of the work (often referred to as “buffer” copies). Some of these

copies are temporary; some may not necessarily be so. Are some or all the copies

of a musical work made that are necessary to stream that work incidental DPDs?

If temporary copies can be categorized as incidental DPDs, what is the definition

of “temporary”? Some “temporary” copies may exist for a very short period of

time; others may exist for weeks. Is the concept of a “transient” copy more

relevant than the concept of a “temporary” copy? If fragmented copies of a

musical work are made, can each fragment, or the aggregation of the fragments

of a single work, be considered an incidental DPD? If a fragmented copy can be

an incidental DPD, does it make a difference in the analysis whether the copy is

temporary or is permanent? ... 53

Many parties will be affected by any resolution of the issue. RIAA, for

example, seeks an interpretation of the DPD status of “On-Demand Streams”54 and

“Limited Downloads,”55 asserting that they are incidental DPDs. Napster filed

comments opposing RIAA’s position, arguing that Congress must clarify the status

of incidental DPDs, not the Copyright Office. DiMA argues that all temporary

copies of a musical work that are made to stream constitute a “fair use” which should

not be subject to any royalty. And, MP3.com, reiterating concerns expressed in

testimony before Congress, argues that a distinction must be made between different

types of streaming. In the context of its “locker”service, which permits subscribers

to access music that they have previously purchased, MP3.com argues that its users

have already compensated copyright rights holders when they purchased the original

CD.

The DPD controversy leads to the broader question of how music royalties

should be distributed over the Internet. Some argue that digital transmission on the

Internet blurs the distinction between public performance and computer-driven

66 Fed. Reg. at 14101-02.

An “On-Demand Stream” is defined in the filings of the RIAA as an “on-demand, real-time

transmission using streaming technology such as Real Audio, which permits users to listen

to the music they want when they want and as it is transmitted to them.” 66 Fed. Reg. at

14100.

A “Limited Download” is defined in the filings of the RIAA as “an on-demand

transmission of a time-limited or other use-limited (i.e. non-permanent) download to a local

storage device (e.g., the hard drive of the user’s computer), using technology that causes the

downloaded file to be available for listening only either during a limited time (e.g. a time

certain or a time tied to ongoing subscription payments) or for a limited number of times.”

Id.

CRS-14

reproduction. Online firms argue that royalties to compensate composers and

publishers for streamed music should track traditional over-the-air broadcast and

retail sales: Mechanical royalties are triggered when CDs or tapes are sold and

performance royalties apply when music is broadcast or played publicly. Hence, they

assert that when a consumer listens to music on the Internet (without saving it), it

should constitute a performance as opposed to a reproduction; downloading a song

for future use, they contend, is a reproduction.56

Legislation introduced in the 107th Congress. To date, only one bill has

been introduced in the 107th Congress that is concerned solely with online music

licensing issues.

H.R. 2724, 107th Cong., 1st Sess. (2001): The “Music Online

Competition Act”(MOCA). Introduced by Representatives Cannon and Boucher,

MOCA, if enacted, would streamline music licensing procedures by consolidating

different aspects of copyright owners’ performance and reproduction rights through

the licensing processing for digital transmission of sound recordings. It addresses

other aspect of online music. Among other things, it:

! amends the public performance exemption for vendors, 17 U.S.C. § 110(7),

to allow music “sampling” in a retail context to promote sales to include

digital audio transmission by vendors and online services;

! amends the ephemeral licensing requirements in § 112(a) to liberalize the

terms for ephemeral copying;

! exempts statutory public performance licensees from the ephemeral recording

license requirement for digital audio transmissions used pursuant to the

performance license. This provision appears to implement the Copyright

Office’s recommendation under the DMCA § 104 Report;

! amends 17 U.S.C. § 114(g) regarding royalty payment distributions to

performers for digital audio sound recordings;

! amends 17 U.S.C. § 114(h) governing the terms under which a copyright

owner who licenses a digital sound recording to an affiliate must also offer

comparable licenses to the public. It would permit a licensor to require some

level of digital rights management (DRM) technology by licensees, but not

any particular DRM technology or electronic equipment;

! amends notice and royalty setting standards for mechanical licenses under 17

U.S.C. § 115, and creates a new category of digital phonorecord deliveries,

namely, “limited digital phonorecord deliveries;” and

Jon Healy, Net Music Services in Royal Bind; Web: Online firms say publishers’ demand

for reproduction and performance royalties is holding up business, LOS ANGELES TIMES,

May 21, 2001 at C1.

CRS-15

! amends 17 U.S.C. § 117 to exempt “incidental”copies of a sound recording

in digital format provided that the use of the work is otherwise lawful. This

provision also appears to implement the Copyright Office’s recommendation

under the DMCA § 104 Report. And, the bill creates a new exemption from

a copyright owner’s exclusive rights to permit the recipient of either a

phonorecord or literary work received by digital transmission to make copies

for archival purposes, provided that all archival copies are destroyed in the

event that continued possession of the phonorecord or copy ceases to be

rightful.57

Conclusion. While many have called for legislation to streamline the

licensing of sound recordings on the Internet, others believe it is unnecessary because

widespread demand and the market itself will shape a viable new business

environment for online music.

The foregoing discussion illustrates several areas where Congress and the

laws, technologies, and business models. In some instances, issues may be resolved

administratively or judicially as the new language of online music takes on

discernable and concrete meaning. Or conversely, these licensing questions may be

a starting point for legislative proposals to streamline music licensing on the Internet.

For a discussion of the Copyright Office’s recommendations with respect to amendments

to 11U.S.C. § 117, see the DMCA § 104 Report, supra at 159-161.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.