R Street Music-Licensing Case Annex

(See also our Primer on Copyright Legislation and our Music Licensing and Copyright Glossary)



Early streaming services

Mp3.com encouraged its users to upload their personal compact disc collections to a service known as “My.MP3.com.” This would create an extensive streaming catalog of music to be accessed by a user anywhere in the world, often referred to as “space shifting.” Mp3.com had many safeguards in place, such as requiring the user to insert a copy of the CD into their personal computer or purchase it from any one of their partner retailers, to “prove” ownership of the music. However, it was discovered Mp3.com had purchased thousands of CDs and uploaded them to their own server without authorization from the copyright holder.

Bertelsmann Music Group – including Arista Records LLC, Bad Boy Records, BMG Music and Zomba Recording LLC – brought a case against LAUNCH Media Inc. alleging the service LAUNCHcast (now Yahoo Music) willfully infringed BMG’s sound recordings. The case concerned the scope of the statutory definition of an “interactive service,” as codified in 17 U.S.C. § 114(j)(7). An interactive service would be required to pay individual licensing fees to BMG’s sound recording holders. If considered a non-interactive service, LAUNCHcast would be designated under a statutory licensing fee set by the Copyright Royalty Board. The Second U.S. Circuit Court of Appeals concluded LAUNCHcast did not fall under the scope of the definition of an interactive service and therefore its rates should be dictated by the CRB.

EMI Music Group and 14 other record companies (including Capitol Records) claimed copyright infringement due to MP3Tunes’ online music storage “lockers.” The lockers allowed users to upload music from their hard drives or from third-party websites by providing a URL. The court found the storage lockers qualified for protection under the DMCA § 512(c) “safe-harbor” provision. However, due to MP3Tunes’ failure to remove infringing songs, despite having received takedown notices from EMI for 350 songs, Mp3Tunes was liable for contributory copyright infringement.

Similar to Mp3.com, Escape Media Group executives uploaded their own personal music to build a library for the service Grooveshark. The executives also later purged emails implicating and encouraging their bad behavior. The executives did not acquire licenses and often obtained pirated music to upload to their service. An attempted defense under the DMCA § 512(c) “safe-harbor” provision, which shelters digital services from the infringing activities of their users, was posed by the operators of Escape, but the argument was rejected due to the copious damning evidence. Such evidence included emails between the operators that actively encouraged piracy and infringement.



Rate Court

Music was provided through the AOL, RealNetworks and Yahoo services by streaming or downloading. While streaming does not involve any data transfer from the host to the user, downloading does. Downloading provides a copy to the user so that he or she can listen, even when not logged in to the service. Furthermore, users may not simultaneously listen to the song while it is downloading. All parties agreed streaming was a form of public performance and paid ASCAP. However, the parties could not agree to a “reproduction” fee for the later performance of downloads. ASCAP attempted to persuade the court to rethink its definition of “download” and liken it to the transmission of broadcast signals. This argument failed. The court ruled that, because a user could not stream the work as it was downloading, ASCAP was not entitled to a secondary fee.

The parties disputed whether revenue received from the sale of a ring tone should have an integrated licensing fee. The court concluded a transmission of a ring tone to a cellular customer did not constitute a public performance and the mechanical ring tone rate of $0.24 per download was the appropriate rate.

MobiTV offers a service that delivers television programming to mobile telephones and audio channels. The court sought a three-tiered license, similar to the 1990s’ ASCAP license with Turner Broadcasting. The tiers would be

  1. Music intensive fee: 0.9 percent of defined revenue
  2. 0.375 percent for general entertainment
  3. 0.1375 percent for news and sports programming

In 2010, Pandora Media entered a consent decree with ASCAP for a five-year period that commenced Jan. 2, 2011. As early as January 2013, two of the biggest publishing companies (Sony and UMPG) withdrew their digital rights from ASCAP, forcing Pandora to negotiate licenses directly. This increased Pandora’s expenditure and violated the consent decree agreed to by the parties. Pandora went to court to have its rate lowered. While Judge Denise Cote did not agree to lower it, she did maintain the rate at 1.85 percent. In addition, she expressed concerns about collusion on the part of the publishers and the PRO. This case further brought into question the definition of radio and whether or not Pandora could liken itself to terrestrial radio. Judge Cote concluded, while Pandora could not be considered to be in the same exempt status as terrestrial radio – due to its Music Genome Project – it is closer to the terrestrial radio model than many other services and this should be taken into consideration when dictating a rate.

In the second of the Pandora Rate Court decisions, Judge Louis Stanton ordered Pandora to continue to pay a 2.5 percent license rate. A similar argument was posed as in the ASCAP case: several publishers had withdrawn their catalogs from BMI and Pandora was forced to license directly. Pandora requested the rate remain at 1.75 percent, as it had been for the past seven years. Stanton refused that request and increased the rate. Stanton concluded there was a “window of free-market negotiations” to look to as benchmarks in the direct licenses Pandora forged with publishers to conclude the rate for the PRO.


Mechanical copies

The issue in this early case was to decide if something had to be directly perceptible or intelligible to a person to be considered a copy. Because piano rolls are only readable by self-playing pianos, the Supreme Court ruled they were not copies and no royalties were owed to the composer. However, only a year after this decision, Congress enacted the Copyright Act of 1909, which set requirements for compulsory licenses mandating standardized fees to songwriters to use their work. Congress set the fee low to allow individuals to be able to afford the licensing costs and to innovate.


 

Terrestrial radio

An eating establishment (Aiken) played terrestrial radio to its customers over a loudspeaker. While the station had obtained a license from American Society of Composers to broadcast the work, the restaurant did not. Twentieth Century Music Corp. petitioned the court for a performance right royalty from the restaurant. The Supreme Court ruled in favor of Aiken, stating the restaurant’s use of terrestrial radio does not constitute a “performance,” and there was therefore no infringement on the exclusive rights of the petitioner to publicly perform their work for a profit.


Parody

Disc jockey Rick Dees sought and was refused permission to use Marvin Fisher’s song, “When Sunny Gets Blue” for his parody version, “When Sonny Sniffs Glue.” The parody used 29 seconds of the original song. Fisher complained on grounds of unfair competition, defamation and copyright infringement. A fair-use defense was properly lodged against the claim of infringement and this case has since been used as a benchmark for comedic parody.

2 Live Crew and its record label were accused of copyright infringement due to their parodied use of Roy Orbison’s “Oh, Pretty Woman.” The band’s manager had asked Acuff-Rose for a license to parody the song, but was refused. 2 Live Crew nonetheless produced and released the parody. The Supreme Court held commercial parody may be a fair use. 2 Live Crew’s work copied the first line of the lyrics and the characteristically famous opening bass riff, it did not go to the “heart” of the original work. While it was a derivative work, the court did not believe 2 Live Crew’s version would substantially affect the market of Roy Orbison. Thus, three of the four prongs of §107 were met sufficiently to consider the parody a fair use.


Sampling

Biz Markie, signed to Warner Bros. Records, was accused of copyright infringement because he sampled a portion of the song “Alone Again (Naturally)” by singer/songwriter Gilbert O’Sullivan. In this case, Biz Markie and Warner Bros. had attempted unsuccessfully to procure a license from O’Sullivan. This was used as evidence against them for “willful infringement” of the work. This opinion has been highly criticized due the bench advocacy on the part of the Southern District of New York and has had a major impact on hip-hop.

NWA sampled and lowered the pitch of a two-second guitar chord from Funkadelic’s “Get off Your Ass and Jam” in their song “100 Miles and Runnin.'” This sample was looped five times. The Sixth U.S. Circuit Court of Appeals ruled this sample did not fall within the de minimis exception, but did not rule out the argument of fair use. While this decision has not been fully adopted by all of the federal circuits, it has affected industry practice significantly by calling into questioned the definition of a “transformative work” in copyright. The case was cited as recently as of 2008 in the Federal Court of Justice of Germany (Bundesgerichtshof), regarding a sample by Moses Pelham of the electronic band, Kraftwerk’s “Metall auf Metall” (“Metal on Metal”).


 

Analog and digital services

Sony Corp. created the Betamax videocassette recorder, which allowed users to record live broadcast programs onto tapes to watch at their convenience. This is known as “time shifting” and the court concluded it was not a form of copyright infringement, but fair use. This conclusion was primarily reached by the Supreme Court due to the size of a typical audience: the Betamax (and other VCR formats) was intended for home use, not commercial use. Furthermore, the court ruled Sony could not be held liable for any contributory copyright infringement or potential infringements by users because the device was sold for a legitimate, non-infringing purpose.

Considered a reinterpretation of Sony Corp., the Supreme Court ruled producers of technology who promote the ease to infringe copyrights can be sued for inducing copyright infringement. Though the technology itself did not infringe a copyright, the peer-to-peer service gave the user tools to commit infringement and therefore, the service could be held liable.

Cablevision was sued for copyright infringement on grounds of unlawful copying and public performance associated with their remote-server digital video recorder service, which enables subscribers to copy programs transmitted over Cablevision’s cable service for later streamed playback. The court concluded user-requested content copying did not constitute direct infringement; time-shifting did not constitute public performance; and the copying of streamed content for the purposes of buffering did not fit the requirement of unlawful copying.

Areo’s service allowed users to access free, over-the-air broadcast television through their PCs, smartphones and other devices. Each user was assigned a miniature antenna at Aereo’s facilities and any recorded programming was saved on Aereo’s servers. Another case concerning time-shifting, the court ruled this retransmission of broadcast television was a “public performance” of the network’s copyrighted work. Such a performance is forbidden without the express consent of the copyright holder.


Federal Communications Commission

Pandora Media purchased an adult contemporary radio station in Rapid City, S.D., for $600,000. This purchase was approved by the FCC two years later in June 2015. By owning a terrestrial radio station, Pandora will gain footing in the argument they are – like their competitor, Clear Channel, which owns iHeartRadio – an online terrestrial radio service. This may allow for a lower rate for Pandora to license music. Currently, it pays more than 60 percent of its annual revenues in licensing fees.


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