Do the Right Thing

Apr 1, 2001 12:00 PM, By Eric Leach

Okay, I'll admit it: the movie Almost Famous brought out my weepy, nostalgic side. I remember when making music was simple — I'm talking about the '70s. You'd practice in the basement, load your gear into the step van, play weekend gigs at the area bars, save enough money to record in the local studio, and beg stores to carry your album (my parents still have boxes of mine in their basement).

These days, though, music delivery is headed out of record stores and onto the Internet. That means you have a lot more distribution options. For example, you can distribute your music in a limited sense by simply posting songs on your Web site. But online music distribution involves licenses — and not just any licenses. Wild, new, and crazy, these licenses are steeped in laws complicated enough to make you want to change professions. Just ask the folks at Napster.

The laws surrounding online music licensing are extremely complex and, for the most part, have not been interpreted by the courts. That doesn't excuse you from familiarizing yourself with the basics of those laws if you plan to offer any music online. It is critical to consult a knowledgeable attorney if you become involved in online music.

THE BASICS

The physical medium on which a song is recorded, or fixed, is known legally as a phonorecord (think CD). Each phonorecord may contain one or more songs. Each song on a phonorecord embodies two separate and distinct works of art that are protected by U.S. copyright law. The musical work copyright protects the composition, including musical notes and lyrics created by the composer. Ownership of a musical work copyright may be divided among various secondary composers, lyricists, arrangers, editors, and translators, as well as publishers, who usually gain ownership shares in exchange for promotion of the work. When the song is recorded, it qualifies for separate copyright protection as a sound recording. A sound recording's copyright ownership may be divided among performers, record producers, sound engineers, and others responsible for capturing, editing, and mixing the sounds in the recording.

Say, for instance, that you wrote a song, transcribed it onto paper, and copyrighted it. As the composer of the song, you own the musical work copyright. If you record the song in your home studio, you gain ownership of the sound recording copyright, which protects the recording. If you write a song and record it without first putting it on paper, you gain ownership of both copyrights because the composition and the recording are fixed onto the recording medium at the same time.

Copyright owners are afforded a bundle of exclusive rights in their musical works and sound recordings, which lets them control and receive compensation for the use of those works. The exclusive rights include the right to reproduce the work, distribute copies of it, and perform the piece publicly. The public performance right is enjoyed by musical work copyright owners but does not extend to sound recording copyright owners. For example, when a radio station plays a CD selection, the owner of the musical work copyright is compensated for the performance, but the owner of the sound recording copyright is not.

Typically, exclusive rights are managed directly by the copyright owner through contractual mechanisms called licenses, which let third parties reproduce, sell, or perform the work in return for money. Compulsory licenses, also known as statutory licenses, are licenses by which the copyright owner cannot prevent a third party from using the work as long as the third party pays a specified royalty rate and adheres to other statutory requirements.

For sound recording copyright owners, the reproduction and distribution rights are freely negotiated. For example, a sound recording copyright owner could provide a downloadable digital-audio file of his or her recording on a Web site and sell copies directly to consumers. For musical work copyright owners, royalties on phonorecord sales of their compositions are handled through a mechanical licensing scheme. A mechanical license is a compulsory license through which owners of copyrights in musical works are paid for the reproduction and distribution of their compositions' phonorecords. Once a musical work copyright owner authorizes a phonorecord's public distribution, any third party may reproduce and distribute phonorecords of the composition provided that the party pays the compulsory license fee.

Sound recording copyright owners historically have not enjoyed a public performance right. However, for musical work copyright owners, the public performance right was and is important yet difficult to manage. Most owners cannot enforce their public performance rights on every broadcaster or nightclub owner who plays their songs.

An enforcement scheme known as blanket licensing was therefore developed. In this arrangement, performing rights organizations (PROs), such as ASCAP, BMI, and SESAC, issue blanket licenses that allow licensees to play any song in the PRO's repertoire. The PRO then collects and distributes royalties for those performances on behalf of musical work copyright owners. Royalty payments are calculated by surveying and sampling broadcasts.

Sound complicated? Those are just the basic laws that have been around for nearly a century. The fun, cutting-edge stuff lies ahead.

THE NEW LAW

In 1995 Congress passed the Digital Performance Rights in Sound Recordings Act (later amended by the Digital Millennium Copyright Act), which provides sound recording copyright owners with the exclusive right to “perform their works publicly by means of a digital-audio transmission.” That means sound recording copyright owners finally can be compensated, in the form of a freely negotiated license, for public performances of their recordings under certain conditions. Although certainly a boon for those owners, the act's language imposes several limitations on this new public performance right.

First, the right applies to transmissions only. It does not cover live performances or CDs that are played in restaurants, concert halls, or hotels. Second, it only applies to digital transmissions, not analog transmissions such as AM or FM radio. Third, it only applies to digital transmissions of sound recordings; it doesn't apply to digital transmissions of, say, a movie. Finally, it only applies to digital-audio transmissions that are publicly performed; it does not apply to an audio file transmitted to a friend.

The act provides exemptions for various types of digital-audio transmissions, including broadcast transmissions, “incidental” transmissions (such as the programming feed of an exempt transmission from a remote truck), and transmissions of digital music to business establishments for ordinary business use (for example, Muzak transmitted to a clothing store for background music).

The act also imposes a compulsory license on certain types of digital-audio transmissions, including “subscription” transmissions — in which the transmission recipient pays for the service (such as the commercial-free digital music that comes with your cable) — and Webcasts. Notably, the new public performance right expressly applies to “interactive” digital-audio transmissions, in which the transmitted song is selected by or on behalf of the recipient.

Musical work copyright owners continue to enjoy their preexisting public performance right, payable through blanket licenses managed by PROs. Sound recording copyright owners gain a public performance right for any sound recording publicly performed by means of digital-audio transmission, payable through freely negotiated licenses or compulsory licenses.

The act also addresses the reproduction and distribution rights involved in digital phonorecord deliveries. Digital phonorecord deliveries are digital-audio transmissions that result in a “specifically identifiable” (replayable) reproduction of the transmitted sound recording. Essentially, the act recognizes that the preexisting mechanical compulsory license for reproducing and distributing phonorecords of musical works applies to digital phonorecord deliveries and traditional record store — type music distributions.

The act not only extends the compulsory license to musical works that are made and distributed through digital-audio transmission but also makes clear that such transmissions are functionally equivalent to physical reproductions and distributions. That development impacts sound recording and musical work copyright owners. Those who transmit digital phonorecord deliveries must satisfy the compulsory licensing requirements for the delivery of the musical work and obtain a voluntary license for the delivery of the sound recording.

ANALYSIS MODEL

So how does all this legalese apply to a musician who wants to transmit or receive digital copies of songs? When this new body of law is synthesized with the traditional compensation scheme, figuring out who needs to be paid what can generally be analyzed through a series of fairly simple questions.

Public performance rights analysis: is there a transmission?

The act is only concerned with transmissions; other performance types, such as live performances, have no potential liability.

Is the transmission digital?

The act covers only digital transmissions. Analog transmissions are not addressed.

Is the digital transmission a sound recording?

The act only deals with digital transmissions of sound recordings. Other transmission types are not potentially liable.

Is the digital-audio transmission a public performance?

When a digital-audio transmission is classified as a public performance, the transmitter is responsible for obtaining licenses for both the musical work and the sound recording. Licenses for public performances of musical works are generally obtained from a PRO; the type of license available under the new sound recording public performance right depends on how the transmission is categorized. Digital-audio transmissions that are not public performances do not implicate the preexisting public performance right of musical work copyright owners or the new public performance right for sound recording copyright owners.

Is the digital-audio transmission exempt?

Certain types of digital-audio transmissions are exempt. Exempt digital-audio transmissions do not trigger the new public performance right for sound recording copyright owners. However, the preexisting public performance right of musical work copyright owners is still in effect; the blanket license must still be paid to the PRO. If the digital-audio transmission in question is not exempt, it must be further analyzed.

Is the digital-audio transmission an interactive transmission?

Regarding public performance rights, nonexempt digital-audio transmissions are either part of an interactive service or not. As for musical works, whether the transmission is interactive is irrelevant; if the transmission constitutes a public performance, a blanket license must be obtained through a PRO. For sound recordings, interactive transmissions implicate the new public performance right, and voluntary licenses must be negotiated with the sound recording copyright owners. Digital-audio transmissions that are not part of an interactive service are subject to additional scrutiny.

Does the digital-audio transmission qualify for the compulsory license?

Noninteractive digital-audio transmissions are divided into two subcategories: those that qualify for the compulsory license and those that do not qualify. Regarding musical works, whether the transmission qualifies does not matter; if the transmission constitutes a public performance, a blanket license must be obtained. Qualifying and nonqualifying transmissions of sound recordings trigger the new public performance right but are treated differently. Qualifying transmissions, such as Webcasts or subscription transmissions, are eligible for a compulsory license. Nonqualifying transmissions aren't eligible for a compulsory license; therefore, voluntary licenses must be negotiated with the sound recording copyright owners.

Reproduction and distribution rights analysis: is the digital-audio transmission a digital phonorecord delivery?

In terms of reproduction and distribution rights, digital-audio transmissions fall into two subcategories: transmissions that result in a specifically identified reproduction of the transmitted phonorecord (digital phonorecord deliveries) and those that do not. Digital phonorecord deliveries, as the functional equivalent of physical phonorecord deliveries, implicate the reproduction and distribution rights of the musical work and sound recording copyright owners. The standard mechanical compulsory license is available for digital deliveries of musical works, but a voluntary license must be negotiated with the owners of sound recording copyrights. If a transmission does not constitute a digital phonorecord delivery, no reproduction or distribution rights are invoked.

ONLINE MUSIC

The analyses of public performance rights and reproduction and distribution rights are separate and distinct. A single transmission should be analyzed regarding the implication of the public performance rights and the reproduction and distribution rights in both the sound recording and musical work. For the most part, online music is still separated into two categories: streaming and downloadable files. By applying the analysis model, you can see what licenses are potentially involved.

Streaming. Analysis here is problematic not only because of the law's complexity but also because of interpretation issues and the pace at which technology evolves. Two streaming types are common on the Internet: Webcasting, which is essentially Internet radio, and posting, which lets Web site visitors hear a posted audio file by opening it. Posting is generally used to preview music for promotional purposes. For example, a Web site selling downloadable digital-audio files will often let you hear part of the song before you download it.

Both streaming types qualify as digital transmissions of any transmitted sound recordings. Does streaming a song qualify as a public performance? According to the statutory language, it appears so. However, limiting access of a streaming file to a single individual, for example, may not constitute a public performance.

Webcasting, the most common type of streaming audio, is likely not exempt. Although Webcasters could argue that their services are virtually the same as exempt broadcasters', they simply do not qualify according to statutory language. Webcasting is probably not considered interactive because Webcasters, like broadcasters, typically do not create programs specifically upon request. However, Webcasts likely qualify for the new digital performance right compulsory license. If not, the transmitter must obtain voluntary licenses from the transmitted sound recordings' copyright owners to satisfy the new digital performance right.

A posted streaming file is also not exempt but does appear to be interactive: when Web site visitors open a posted streaming audio file, they initiate a transmission of a particular sound recording. Therefore, the transmitter must obtain a voluntary license from the sound recording copyright owner to accommodate the new digital performance right. For both types of streaming, the transmitter must obtain licenses from a PRO for the public performances of the musical works.

The digital phonorecord delivery status of streaming audio remains unresolved. Webcasting does not seem to create a specifically identifiable reproduction of the song on the recipient's computer, but the opinion within the industry is that all digital transmissions are digital phonorecord deliveries. Posted streaming files may also qualify as digital phonorecord deliveries because those files are usually small enough to make a specifically recognizable reproduction possible. In that case, the transmitter must pay the incidental compulsory license fee for reproduction and distribution of the musical work and the voluntary license fee for the sound recording's reproduction and distribution.

Downloadable files. Downloadable files are digital-audio files posted on a Web site and available for downloading by the public, often for a fee. Thus they qualify as digital-audio transmissions when downloaded. An important question is whether downloading a digital-audio file constitutes a public performance.

From a practical standpoint, paying to download a digital-audio file seems too analogous to a traditional phonorecord sale to be considered a public performance and should be treated solely as a digital phonorecord delivery. That argument sounds reasonable; it does not seem fair to subject download transmitters to both public performance and reproduction and distribution fees. It can be argued that when the transmitter's computer responds to a download request for a digital-audio file, it is “performing” the work embodied in the file “publicly.” That position appears to have support within the act's legislative history.

However, it can also be argued that the transmission is not a performance at all because neither the musical work nor the sound recording can be perceived during transmission. The song is being delivered rather than performed, in the classic sense of the word; the works are not “performed” until the recipient plays and hears the digital-audio file, in which case the performance in most instances would not be considered public.

If downloadable audio files are not considered public performances, neither the new digital performance right in sound recordings nor the preexisting public performance right in musical works is implicated. But if those files are considered public performances, they would be classified as interactive transmissions because a downloadable file is a transmission of a sound recording that is selected by or on behalf of the recipient. Therefore, the transmitter must obtain voluntary licenses from the owners of the sound recording copyrights to satisfy the new digital performance right, and the transmitter is also responsible for obtaining licenses from the appropriate PROs for the public performances of the musical works.

Furthermore, downloadable audio files probably qualify as digital phonorecord deliveries, being the functional equivalent of physical phonorecord deliveries. Thus, the transmitter must obtain voluntary licenses for the reproduction and distribution of the sound recordings and must pay the mechanical compulsory license fees for the reproduction and distribution of the musical works.

A TANGLED WEB

As you can see, this is not your parents' music business. Music licensing, particularly online music licensing, is complicated stuff. Take a little time to understand the basics — it will be worth it in the long run. Someday you will have your catalog online, and you may want to know where your money is coming from.

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Eric Leach is an intellectual property law attorney with Goodman & Leach. He has authored several technical and legal articles related to the music business, including Everything You Always Wanted to Know About Digital Performance Rights but Were Afraid to Ask, recently published in the Journal of the Copyright Society of the U.S.A. He can be contacted at (714) 836-0200 or eleach@goodmanleach.com.

LICENSING ON THE WEB

To learn more about the laws and other details involved in delivering or broadcasting music over the Internet, check out the resources listed below.

ASCAP (www.ascap.com)

ASCAP's site offers a host of information and resources for members and nonmembers alike, including its “RateCalc” program for calculating licensing fees and a FAQ about Internet licensing.

BMI (www.bmi.com)

BMI's site, like ASCAP's, has a comprehensive selection of facts and resources regarding music licensing. You can peruse the different license agreements, calculate rates, and license music through the site by using the “Klik Thru”system.

Kohn on Music Licensing (www.kohnmusic.com)

Visitors to this site can find extensive legal information about copyright law and music licensing specifically relating to music delivery on the Internet. The site also has a question-and-answer board and offers various links to resources around the world.

Legal Information Institute

(www4.law.cornell.edu/uscode/17/index.text.html)

This link takes you to a page that breaks down the copyright law into 14 sections, so you can easily find a particular part of the law. Other legal resources can be accessed from the site's main page.

National Association of Broadcasters (NAB; www.nab.org)

NAB's site has all the latest news and laws that affect the Web, radio, and television.

Recording Industry Association of America

(RIAA; www.riaa.com)

Be sure to go to these pages on the RIAA site: Copyright Basics, Music and the Internet, Audio Technologies, and Licensing and Royalties. The site are also has sections about Webcasting and the RIAA's dispute with Napster.

SESAC (www.sesac.com)

The SESAC site offers online song registration for members as well as online licensing of music from the PRO's repertoire. Visitors can also read about licensing agreements and the latest news and laws.

United States Copyright Office (www.loc.gov/copyright)

Get all the copyright law you can handle from these new pages: Webcasting, the Digital Millennium Copyright Act, Napster, and Digital Transmissions.