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Why Current Music Licensing Statutes Are Failing America’s Artists & How To Bring Them Into The Digital Age

Why Current Music Licensing Statutes Are Failing America’s Artists & How To Bring Them Into The Digital Age

Introduction

It was the coming of innovative technology that spurred the need, and subsequent creation of copyright law. Technological innovators have certainly come a long way since the days of the printing press, and the dissemination of copyrighted material today is as vast as and convenient as it has ever been. Policy makers have done what they can to amend the law with each new wave of technology in order to keep with the core principal of copyright, to “promote the progress of Science and the useful arts,”[1] and their efforts have made significant advances. However, in a democracy, reform takes time, and can be a slow and arduous process, which often breeds imperfect results.

Whether it is due to a lack of foresight of innovations and changes to come, or as is more often the case, a result of, as the saying goes, too many cooks in the kitchen, reforms in copyright law often come up short. Furthermore, a reluctance to make widespread change by both policy makers and market participants has led to both a convoluted statute, as well as a habit of holding onto outdated practices for fear of change. Nowhere in the statute are these flaws more evident than with the licensing to perform and distribute musical compositions and sound recordings, and its high time that both Congress and market participants take the leap to implement widespread reform.

This note explores the various areas of music copyright law that require the most scrutiny and reform in order to conform with the digital age. It first reflects on the historical background of reform that has led to today’s current statute. It then points out specific areas in need of reform, namely, the outdated statutory mechanical license under section 115, the complicated performance rights licensing platform under sections 112 and 114 that often leave artists without choice and in the dark, can be overly burdensome on licensees, and lacks parity between musical works and sound recordings, and finally, the misguided exemption of pre-1972 recordings from sound recording rights.

  1. A Brief History of Music’s Incorporation into Copyright Law and Subsequent Reforms

The Compulsory Mechanical License

Though the first Copyright Act of the United States was enacted in 1790, it only extended protection to, “maps, charts and books,” and it was not until the first revision of the Copyright Act in 1831 that musical compositions were included in the subject matter of copyrightable works.[2] However, the protection of musical compositions was only extended to printed sheet music, so it’s addition was not so much an expansion of protection as it was clarification of existing law. The first real change came with the 1908 Supreme Court ruling in White-Smith Music Publishing Company v. Apollo Company,[3] and the resulting Copyright Act of 1909 establishing copyrights first statutory licensing system.[4]

In White-Smith, the court held that perforated music rolls used by automatic playing pianos were not “copies within the meaning of the copyright act,” because even though a copy of the musical work is embedded in the roll, it is so far removed from the original sheet music copy that it is not even intelligible to the human eye.[5] The court wasn’t necessarily happy with the verdict, and in his concurrence, Justice Holmes foreshadows the coming change, stating “A musical composition is a rational collocation of sounds apart from concepts, reduced to a tangible expression from which the collocation can be reproduced either with or without continuous human intervention. On principle anything that mechanically reproduces that collocation of sounds ought to be held a copy, or, if the statute is too narrow, ought to be made so by a further act.”[6]

The Copyright Act of 1909 was, in large part, a reaction to the White-Smith ruling, and responded by giving authors of musical compositions the right to control the “mechanical reproduction” of the music, such as piano rolls and numerous other mechanical reproductions to come.[7] The details of the mechanical reproductive right are, unfortunately, further complicated due to the compulsory license attached to it. At the time of enactment, Congress was worried about the potential unfair bargaining position that a certain piano roll company, the Aeolian Company, held due to their overwhelming control on the market.[8] To combat this concern, Congress included a strict compulsory license in which any person can mechanically reproduce a musical composition without the permission of the copyright owner as long as the work was already being mechanically reproduced, and the licensee compensated the copyright owner according to a statutory royalty.[9] Even though the market has changed considerably since the days of the Aeolian Company, and such compulsory licenses run contrary to core principles of copyright law, we have kept this system alive. Part II of this note will discuss how our reluctance to move away from the statutory mechanical license has brought about an unfair and inefficient system, and Part III will explore a viable option amending section 115 of the Act in order to bring mechanical licensing into the digital era.

Evolution of The Public Performance Right in Musical Compositions

As was previously stated, when musical compositions were first granted copyright protection in 1831, protection was limited to the production and distribution of sheet music. However, even before the 1909 act established mechanical rights, a 1897 amendment granted music compositions a right to pubic performance, and even went as far as invoking criminal penalties in cases of willful, for-profit infringement.[10] This right was extended in the 1909 Act, though limited to only for-profit uses. [11] This restriction was eventually removed in the 1976 revision, and the provisions of that fifty-year-old act continue to encompass primarily all of today’s law of musical composition rights.

Even though composers were granted a public performance right in 1897, it was difficult for them to enforce or capitalize on that right until the emergence of the American Society of Composers, Authors, and Publishers (ASCAP) in 1913.[12] ASCAP is one of several Performance Rights Organizations (PROs) still in existence that represents thousands of publishers and songwriters in distributing blanket licenses to all interested licensees. With PROs, the transaction cost of both obtaining a license to perform a work as well as capitalizing on the performance of a work drastically decreased. ASCAP gained legitimacy and close to a monopoly on the market when it brought suit against a restaurant that was performing the musical work of an artist they represented without a license.[13] The dispute went all the way to the Supreme Court where it was held that it was an infringement of the right of performance to perform a copyrighted musical composition inside a restaurant that charges for entry, if the restaurant does not obtain a license.[14]

With the growth of radio, ASCAP began to use their market dominance in order to get more and more money from broadcasters which brought about the creation of a second PRO, Broadcast Music, Inc. (BMI). With the consolidation of so many supposedly competing entities under one roof being offered for a single price, antitrust violations were always a concern, and a set of lawsuits filed by the United States in 1941 lead to mandatory consent decrees being implemented on the PROs.[15] The consent decrees are twofold in nature. First, the PRO’s must offer blanket licenses to all of the works in their repertoire, as the limited transaction costs that come with the blanket license is the only justification for allowing the antitrust issues to persist.[16] Second, if the PRO and licensee cannot come to an agreement on rates, the licensee can seek rate-setting in federal court.[17] PROs continue to play a valuable role for both songwriters and licensees, but as will be discussed in Part II and Part III, there is much need for reform as well as well-thought-out solutions to streamline the licensing of public performances for musical compositions.

 

The Extension of Copyright Protection to Sound Recordings and the Digital Performance Right in Sound Recordings Act

It was not until The Sound Recordings Act of 1971 that sound recordings were recognized federally as “writings,” subject to limited copyright protection separate from the musical composition. After the White-Smith decision, states were unsure on how to treat sound recordings and courts came to varying conclusions, with many calling for a clarifying amendment.[18] Due to a sufficient rise in the unauthorized copying of phonorecords and a need to comply with the Geneva Convention, Congress expanded section 106 copyright protections to sound recordings, with the exception of public performance. The sound recording rights were to only federally apply to those that were recorded after 1972, while leaving all pre-1972 recording’s status up to the individual states until February 15, 2067.[19] Part II will discuss the difficulties that this exemption has brought on and Part III will advise bringing pre-1972 recordings under the same federal protection as the rest of sound recordings generally.

As internet use started to rise, record sales simultaneously began to fall. In the advent of this phenomenon, sound recording rights’ holders began to get more and more disenfranchised, as songwriters and publishers, who enjoyed a public performance right, began to make a larger share the industry’s profits. Much, if not all, of the piracy that occurred via the internet came through the form of peer-to-peer file sharing, in which one user transfers or shares their file with another user thereby infringing copyright owners right of production, and consequently severely dampening record sales.[20] As music streaming, or “webcasting,” started to become popular, piracy became less and less of an attractive option because music streaming platforms were user-friendly, legal, and offered continuous access to large libraries of free music. Since no reproduction is being made or distributed, streaming provided hope for music artists and producers as a way to capitalize on the migration from analog to digital audio.[21]

However, there remained many concerns due to the belief that Internet streaming will do much more harm to record sales than broadcast radio due to the sheer number of digital radio stations and the ability for consumers to more easily pinpoint the song they may be looking for.[22] Congress reacted to these concerns with the Digital Performance Right in Sound Recordings Act of 1995 (DPRA),[23] which was later revised with the Digital Millennium Copyright Act of 1998 (DMCA).[24] The  DPRA established a digital transmission public performance right for sound recordings[25] and set forth a statutory license for the public performance of sound recordings via digital transmissions.[26] The DMCA added in a second statutory license for the temporary ephemeral copies that are inevitably made during the process of streaming audio over the Internet.[27] These are the most current revisions of the act and are still in force today. Part II below will explain why these provisions have not done the industry as much justice as they could have, and Part III, will layout possible revisions to section 112 and section 114 in order to make the statute more equitable and efficient.

         2. An Outdated Statute in Need of Reform

Mechanical Licensing

As discussed above, the statutory license for mechanical licenses was first created to protect against a piano roll manufacturer that had a near monopoly on the market, and was the only entity seeking mechanical licensing. The demand for, and use of, piano rolls is practically nonexistent today and there is no threat that any single entity would have a disadvantaged bargaining position, and yet we have been reluctant to do away with the statutory license. We haven’t kept it around because it is the most efficient, but instead because both Congress and major players in the market are reluctant to disrupt the status quo, despite numerous problems.

The first major issue is the effect the statutory rate has on the private negotiations, which make up a vast majority of all licensing. Distributors negotiate licenses with The Harry Fox Agency, which represents over 48,000 publishers in the music industry.[28] While convenient for some startup digital broadcasters, the majority of licenses are negotiated outside of the strict statutory license.[29] Although copyright owners are not relying on the statutory license in order to make a fair deal, it is still greatly affecting them; just not in the way Congress intended. Instead of serving as security from unfair deals with an unfair bargaining position, it is, in fact, prohibiting copyright owners from obtaining a license above the statutory rate which effectively serves as the ceiling to what artists can receive.[30]

The second major problem with the current statutory rate for mechanical licenses under section 115 is that the transaction costs on distributors and broadcasters is unnecessarily high, especially in the digital realm. Licensees simply have to seek out and negotiate too many licenses especially if they are a digital service that performs via a digital audio transmission, and also allows a download option.[31] The Harry Fox Agency is effective in reducing some of those transaction costs, but as is explained in Part III, the development of Music Right Organizations (MROs) that are able to offer blanket licenses to both distribution and public performance rights would go a long way in simplifying the process.

Disparity in Treatment of Ephemeral Recordings in § 112(e)

The problems with section 112(e) primarily derive from the same issue discussed in regards to mechanical licensing, in that two different entities are in charge of licensing public performance rights and mechanical reproductive rights in musical compositions.[32] Section 112(e) requires a statutory license in order to reproduce sound recordings during digital transmissions, but producing a copy while buffering music is simply the nature of how the technology works, and it is not possible to make use of those ephemeral copies. Terrestrial broadcasters are exempted from making such copies in order to have seamless broadcasting[33], and there does not seem to be a valid reason to charge digital broadcasters who are already paying a license for the public performance of both the sound recording and musical work, where as terrestrial broadcasters only pay a license for musical compositions since sound recordings only have public performance protection for digital transmissions.

Bringing Parity to the Public Performance Right

The expansion of a public performance right for sound recordings for digital transmissions was a large step forward, but section 114, and public performance licensing in general, is rife with problems. The main issues are (1) the inability to control licensees of sound recordings that fail to comply with the statutory license or distribute royalties accordingly[34], (2) the unwanted effect brought about by 114(i) which unfairly favors sound recording copyright owners, (3) the exemption of pre-1972 sound recordings from being granted a public performance right, (4) the inefficiency of using the federal court system for rate disputes involving musical compositions, and, most importantly, (5) the misstep in exempting terrestrial broadcast from the statutory license.[35]

Unlike in section 115 where there is a termination right for non-compliant licensees[36], section 114 gives SoundExchange, the entity charged with collecting royalties for public performance of sound recordings, no such control. This is an issue because digital broadcasters are far more numerous than their terrestrial counterparts, and ensuring compliance with all of them is not always worth the cost of doing so.[37] Section 114(i) was originally enacted to ensure that there was not a wide disparity between the amount paid for the performance of sound recordings versus the amount paid for the performance of musical works. However, this provision is having the opposite effect[38], and if the Copyright Royalty Board could take into account all relevant evidence, more fair and equal rates would come to fruition.

When digital broadcasters and copyright owners of musical works are unable to come to an agreement on a fair rate for a license, then, according to the consent decrees, litigation is required by a rate court[39], as was have seen in In re Pandora Media. Delegating rate setting disputes to the federal court is a slow and expensive process that discourages such action[40]. Furthermore, the rate courts do not have the expertise that the Copyright Royalty Board possesses.[41] Finally, to comply with their consent decrees anyone can have access to their repertoire of works before negotiations are completed. This often leads PROs at an unfair disadvantage because negotiations can often be long and arduous, and the licensee is already receiving the product, so they have no urgency to come to a deal.

Congress’s decision in 1971 to only extend federal copyright protection to those sound recordings fixed after 1972[42] has turned into something of a mess. Decisions on whether to include pre-1972 recordings are being left to state courts[43] which is not a desirable outcome for digital broadcasters who have a national audience, especially since State recognition varies dramatically[44]. Generally speaking though, the lack of protection to pre-1972 recordings puts a rich part of our country’s heritage at risk.

Finally, there is the issue of terrestrial radio’s exemption from liability involving the performance of sound recordings.[45] Terrestrial radio received an exemption based off of a long-standing and mutually beneficial relationship in which broadcasters are able to use the sound recordings in exchange for receiving promotion on the airwaves to sell records. Due to the nature of the market, record sales are no longer the cornerstone of music industry revenue, as they once were. Non-interactive digital radio is no less promotional for recording artists as their terrestrial counterparts, if not more so due to the sheer numbers that Internet broadcasts are able to reach. Because of these two factors, copyright owners in sound recordings should be afforded a licensee fee for airtime on terrestrial radio in order to treat digital and terrestrial broadcast evenhandedly and, as many would argue, finally give recording artists what they are due.

        3. Reforms Needed to Bring Music Licensing into The Digital Era

Keeping the above in mind, it is clear that copyright law, as it stands, could do a far better job servicing the needs of the music industry. In order to enact the reform needed, in some cases, a simple repeal will suffice, but others require broad overhaul. All of section 115 should be repealed and rewritten to allocate licensing of both distribution and performance of musical compositions to newly created musical rights organizations (MROs) that will offer blanket licenses. These MROs can be the same PROs in practice now but without limitation as to which rights they may license. Instead of a statutory license, all licenses would be negotiated privately, with the Copyright Royalty Board there to help resolve any disputes. This will allow a one-stop shop for licensing musical compositions.

In order to provide a much more efficient and fair performance rights standard, section 106(6) should be amended to add terrestrial broadcasts to sound recording rights. However, section 114 will unfortunately need a complete rewrite, as it is over-complicated and the problems too systemic. Terrestrial broadcasts should be included in the statutory license and similar to the new section 115, the Copyright Royalty Board should only step in when a dispute occurs. However, the differences and business models between digital and terrestrial radio should be weighed heavily. Further, SoundExchange should have a right to withdraw a license for delinquent or non-compliant licensees. Finally, section 301(c) should be repealed, giving pre-1972 sound recording equal rights as post-1972 sound recordings.

These reforms will by no means provide a perfect statute, and all parties will never simultaneously be happy. If Congress wants to wait until a solution is found to satisfy all parties, then reform would simply never come. All of these issues have been debated by both Congress and the Copyright Office, with input from every major party. Congress has all the information it needs to write a law that conforms best with the purpose of the copyright law, the wide dissemination of works to the public and fair compensation and incentive to artists and producers; all they need to do is get it done.

[1] U.S. Const. Article 1

[2] 4 Stat. 436

[3] White-Smith Music Publishing Company v. Apollo Company, 209 U.S. 1 (1908).

[4] Pub.L. 60–349, Copyright Act of 1909 Chapter 320(e)

[5] White-Smith supra note 3 at 18

[6] Id. at 20

[7] Act of Mar. 4, 1909, ch. 320, § 1(b), 35 Stat. 1075.

[8] Cohen, Julie E.; Loren, Lydia Pallas; Okediji, Ruth L.; O’Rourke, Maureen A. Copyright in a Global Information Economy (p. 413). Wolters Kluwer Law and Business.

[9] Act of Mar. 4, 1909 supra note 7

[10] Act of January 6, 1897, 44th Cong., 2d Sess., 29 Stat. 694.

[11] Act of Mar. 4, 1909, ch. 320, § 1(e), 35 Stat. 1075.

[12] Paul Goldstein, Copyrights Highway: The Law and Lore of Copyright from Gutenberg to the Celestial Jukebox 68 (1994).

[13] Herbert v. Shanley, 242 U.S. 591 (1917) “Performances not different in kind from those of the defendants could be given that might compete with and even destroy the success of the monopoly that the law intends the plaintiffs to have.”

[14] Id.

[15] United States v. ASCAP, Civ. No. 41–Civ–1395, 2001 WL 1589999, (S.D.N.Y. June 11, 2001)

[16] Id. at § IX

[17] Id.

[18] See, e.g., Waring v WDAS Broadcast. Station, Inc. 327 Pa. 433, 194 A. 631 (1937); RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir.), cert. denied, 311 U.S. 712 (1940); Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955)

[19] 17 U.S.C. § 301(c)

[20]See A & M Records, Inc. v. Napster, Inc., 239 F. 3d 1004, 1021-22 (9th Cir. 2001). (Napster, Inc.  provided a platform for users to easily and freely share digital MP3 files over the Internet. The circuit court held that Napster could be held contributorily liable for the infringing activity because they not only knew about it but had the ability to stop it.) See also In re Aimster Copyright Litigation, 334 F. 3d 643 (7th Cir. 2003) (The court found that Aimster’s interface provided “invitation to infringement,” and had no financial non-infringing use so was therefore liable or contributory infringement.)

[21] Matt Jackson, From Broadcast to Webcast: Copyright Law and Streaming Media, 11 Tex. Intell. Prop. L.J. 447, at 450 (2003)

[22] Id.

[23] Pub. L. No. 104-39, 109 Stat. 336, Digital Performance Right in Sound Recordings Act of 1995

[24] Pub. L. 105-304, Digital Millennium Copyright Act of 1998

[25] 17 U.S.C. § 106

[26] 17 U.S.C. § 114

[27] 17 U.S.C. § 112(e)

[28] The Harry Fox Agency found at https://www.harryfox.com/publishers/why_affiliate.html

[29] W. Jonathan Cardi, Über-Middleman: Reshaping the Broken Landscape of Music Copyright, 92 Iowa L. Rev. 835. 841-42 (2007)

[30] Al Kohn & Bon Kohn, Kohn On Music Licensing 771 (4th ed. 2010)

[31] Statement of Marybeth Peters The Register of Copyrights before the Subcommittee on Courts, the Internet, and Intellectual Property, Committee on the Judiciary found at https://www.copyright.gov/docs/regstat062105.html

[32] DMCA Section 104 Report. U.S. Copyright Office. August 2001 at 143

[33] 17 U.S.C. § 112(a)

[34] DMCA Section 104 Report supra note 31 at 117

[35] 17 U.S.C. § 114(d)(1)(a)

[36] 17 U.S.C. § 115(c)(6)

[37] SoundExchange First Notice Comments at 2, 5.

[38] DMCA Section 104 Report supra note 31 at 104. See also In re Pandora Media, 6 F. Supp. 3d 317 (SDNY 2014) (This suit was filed upon this agreement between the digital broadcaster Pandora and ASCAP regarding a fair license rate for the public performance of ASCAP’s repertoire. Primary concern of ASCAP was that sound recording copyright holders were receiving the lion share of the profits and, due to section 114(i), the Copyright Royalty Judges could not take this inequity into account leading to major publishers requesting an opt-out right for new media transmissions so that they could negotiate their own rate outside of PROs).

[39] United States v. ASCAP, Civ. No. 41–Civ–1395, 2001 WL 1589999, § IX (S.D.N.Y. June 11, 2001)

[40] DMCA Section 104 Report supra note 31 at 157.

[41] Id. at 156.

[42] Sound Recording Act of 1971, 85 Stat. at 392.

[43] See e.g. Capitol Records v. Naxos, 4 N.Y. 3d 540(NY 2005); (The court found that pre-1972 sound recording presumptively entitled to common-law copyright protection in New York and Flo & Eddie v. Sirius XM Radio, 2014 U.S. Dist. LEXIS 139053 (C.D. Cal. 2014)

[44] Federal Copyright Protection for Pre-1972 Sound Recordings. Register of Copyrights, at 48 (December 2011), (One complicating factor is that common law protection is amorphous, and courts oftenperceive themselves to have broad discretion. So it is sometimes hard to know whether new uses might be problematic.”)

[45] See 17 U.S.C. § 114(d)(1).

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