United States: US Copyright Office Looks Closely At Audio Licensing

The nation’s copyright law was not drafted with current digital technology in mind. Specifically, the concept of streaming audio raises numerous licensing issues that are not clearly addressed by the current law.

The current law requires a streaming audio company to obtain performance licenses, most of which can be obtained from ASCAP, BMI and SESAC. It also requires the company to get licenses pursuant to the Digital Performance Rights in Sound Recordings Act. In addition to these performance licenses, the law also seems to require compulsory licenses for distribution of copies of the compositions, as well as authorization from the owners of the copyright for distribution of copies of such recordings.

But what constitutes distribution? And what is the current state of the law regarding the compulsory license requirement for distribution of copies of the compositions and sound recordings?

Section 115 of the Copyright Act requires one to obtain from the owners of the underlying musical composition a compulsory license in order to make and distribute works by "digital phonorecord delivery." A digital phonorecord delivery, or DPD, is defined as "each individual delivery of a phonorecord by digital transmission of a sound recording which results in an identifiable reproduction by or for any recipient of a phonorecord of that sound recording, regardless of whether the digital transmission is also a public performance of the sound recording or any nondramatic musical work embodied therein."

The Act says that a DPD occurs not only when the listener makes actual physical hard copies but also when a song is downloaded to the listener's hard drive. In fact, the Act states that license fee rates will distinguish between digital phonorecord deliveries where the reproduction or distribution is incidental to the transmission and digital phonorecord deliveries in general.

But what constitutes a digital phonorecord delivery in general (for which a license rate has already been set) and what constitutes an "incidental DPD" (for which no license rate has yet been set)? Furthermore, are there certain "incidental DPDs" which will not require payment of a compulsory license fee? The Copyright Office then conducts a proceeding to set royalty rates for these incidental DPDs.

The current law fails to address this issue. Therefore, the Copyright Office recently issued a request for comments concerning the interpretation and application of the mechanical and digital phonorecord compulsory licenses to certain digital music services.

Specifically, the Copyright Office would like to clarify which DPDs may require payment of a full license fee, which may require payment of a smaller license fee and which may not require payment of a license fee at all.

The Copyright Office has recognized two types of digital music deliveries that may be considered incidental DPDs. These are 1) on-demand streams, or realtime transmissions using streaming technology such as RealAudio, which permits users to listen to the music they want when they want and as it is transmitted to them; and 2) limited download transmission of a time-limited download to a local storage device, using technology that causes the downloaded file to be available for listening only either during a limited time or for a limited number of times, as in a subscription service. Of course, there are other streaming audio scenarios which do not fit squarely within these categories but which must also be addressed.

The Copyright Office will also explore related issues such as whether distinctions should be drawn among streaming audio services to recipients who select the streams from a locker containing the recipients' purchased music collections and services that indiscriminately transmit streams of music to the public at large. Should the Copyright Office differentiate between the types of copies that are made? For instance, there are copies made by the servers that are necessary in order to stream and accomplish delivery of the work. Additional copies are made by the receiving computer to better facilitate the actual performance of the work. Some of these copies are temporary and some may not be temporary. Should transient copies be treated differently than temporary copies? Should temporary copies include copies that can exist for a number of weeks?

Numerous issues must be resolved. Whether royalties are owed by numerous companies will clearly depend on the determinations made by the Copyright Office, or Congress as the case may be. Therefore, companies with a stake in the findings of the Copyright Office are urged to become directly involved in this decision making process by submitting comments.

Of course, certain usages may arguably constitute a fair use. Any individual may reproduce a copyrighted work for a "fair use" without payment. Section 107 of the Copyright Act provides a list of fair use factors that include:

1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; 2) The nature of the copyrighted work; 3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and 4) The effect of the use upon the potential marketplace for or value of the copyright.

It is important to note that with certain limitations and protections in place, some companies may have a good argument that their use would fall within the fair use exception.

Clearly, the current law is ambiguous. However, the Copyright Office is on its way to defining and clarifying the licensing requirements. Fair use is still an argument. Although, other than what was hinted at in the Napster opinion, no court has made any definitive rulings as to which or how many limitations and restrictions, if implemented, would push the usage over into the "fair use" column.

This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.

© 2001 Firehose