Digital Media Lawyer Blog

Digital media law update: On October 14, Judge Denise Cote of the Southern District of New York ruled that a cell phone service provider does not need a public performance license when it provides ringtones to its customers. The Copyright Act provides the owners of musical compositions are entitled to license fees when their works are "publicly" performed. However, Judge Cote held that because each download of a ringtone is only received by a single customer, the transmission of the download cannot be considered a public performance. Cell phone customer playbacks of ringtones are also not public performances because they are typically only heard by the small circle of people near the phone user and are not performed for money. No one sells tickets so people can hear her phone ring!

How this case began

Cell phone customers can download ringtones from the Internet or their cell phone service provider, such as Verizon. When Verizon sells ringtones, it sends a digital file containing the ringtone which is downloaded onto the customer's phone. A customer can listen to the ringtone by clicking on the digital file, or the customer can set up her phone to play the ringtone when she receives an incoming call. After downloading, Verizon's only role in playing the ringtone is to send a signal to the customer's phone to indicate an incoming call. That signal is the same regardless of the ringtone that is played. While Verizon receives a fee from the original download of the ringtone, it does not receive fees when the ringtone is played.

The Copyright Act treats sound recordings separately from the compositions on which they are based. Under the Act, copyright holders of musical compositions have six exclusive rights, including: (1) the right to reproduce the composition, (2) the right to prepare derivative works, based on the composition -- e.g., sound recordings, (3) the right to distribute copies of the composition to the public, (4) the right to perform that composition publicly and two other rights not at issue here. 17 U.S.C. § 106. Copyright holders often license these individual rights separately.

Under a prior ruling, Verizon already pays a royalty of 24 cents per ringtone download to copyright holders of musical compositions for the reproduction and distribution rights to their works (rights (1) and (3) in the list above).

ASCAP negotiates the public performance rights for musical compositions -- right (4) in the list above. In January 2009, Verizon filed this action to determine the reasonable license fee it should pay ASCAP for the performance rights for the ringtones. ASCAP contended that Verizon was liable for performance rights royalties for each download of a ringtone to a customer phone, and for each time a customer played a ringtone on his/her phone. District Court Judge Cote disagreed.

Ringtone Downloads Are Not Public Performances

Under Section 106(4) of the Copyright Act, a composition is only entitled to performance license fees when its is performed "publicly." A composition is considered to have been performed publicly either if it is performed in a public place "where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered" (e.g., a concert), or if it is "transmitted" to the public via some device for its enjoyment (e.g., on the radio or Internet). 17 U.S.C. § 101. Public performances are exempt, if they are given "without any purpose of . . . commercial advantage and without payment of any fee . . . for the performance" -- as long as there is no admission charge. 17 U.S.C. § 110(4) (e.g., a free concert).

Continue reading "In re Cellco / Verizon (USA v. ASCAP): Behind the District Court Ruling that Customer Use of Ringtones Does Not Constitute a Public Performance" »

On August 21, 2009, the Second Circuit finally weighed in on when a webcasting service that provides users with individualized playlists can be considered an "interactive service" and thus be required to pay individual licensing fees to sound recording copyright holders. If a webcaster is not deemed to be an interactive service, then it only needs to pay a statutory licensing fee to the Copyright Royalty Board. According to the Second Circuit, which is the first Circuit to rule on the issue, the determining factor is the degree of control that a user exercises over the songs to be played. Arista Records, LLC, et al. v Launch Media, Inc., U.S.C.A., Second Circuit, No. 07-2576-cv.

The webcaster at issue was Launch Media, Inc. and its online music service, LAUNCHcast, which permitted users to act as their own DJs and create their own simulated radio broadcasts. Launch was purchased by Yahoo! in 2001 and LAUNCHcast today is part of the Yahoo! Music site.

LAUNCHcast did not permit users to directly request the specific songs be played at specific times. Instead, LAUNCHcast created a convoluted algorithm which permitted a user to select the genre of music he wished to hear (e.g., country, classic rock), designate preferred artists and songs, and specify songs he did not wish to hear. LAUNCHcast then created its own playlist from the tens of thousands of songs in its catalog and delivered this via webcasting to the user.

Launch was sued in 2001 by Arista and other recording companies who charged that LAUNCHcast was an "interactive service" under 17 U.S.C. § 114(j)(7) and hence was required to pay individual licensing fees to them and other copyright holders. On the surface, it would seem that the recording companies have a point, since the entire point of LAUNCHcast is to permit interactivity and give users some control the music that was delivered to them.

However, the trial court did not agree. And, on appeal, neither did the Second Circuit.

Until 1971, the Copyright Act did not provide copyright protection for sound recordings. The ostensible reason was that the recording industry and radio broadcasters existed in a symbiotic relationship in which the broadcast of recorded music was "free advertising" that brought customers to music stores where they would purchase recordings. The same logic is being used today by broadcasters in their fight against the proposed Performance Rights Act. (See our blog posts of March 3 and 30, 2009).

With the inception of the Internet, the recording industry realized that webcasting had the potential to significantly depress music sales, if users could were able to get webcasting of music on demand. In 1995, Congress enacted, and in 1998 amended, the Digital Performance Right in Sound Recordings Act, which gave sound recording copyright holders an exclusive right to perform (play or broadcast) sound recordings via a digital audio transmission for transmission through paid services and "interactive services." 17 U.S.C. § 114(d). Non-interactive services qualified for statutory licensing, but interactive services were required to obtain individual licenses for each recording played.

Continue reading "Arista Records v. Launch Media: Degree of User Control over Song Selections Determines whether Webcasting Service Is Required to Pay Individual Licensing Fees for Sound Recordings" »

Bills to provide for broadcast royalties to performers of recorded music were introduced into the House and Senate in February 2009. There is a reasonable chance that the bills will be passed this year. While similar legislation has died in Congress in recent years, the current bill does have bipartisan support.

On March 10, after some delay, the expected committee hearing the hearing on the House version of the bill finally occurred. The hearing began with testimony from a rocker, a member of the Smashing Pumpkins, who expressed appreciation for the contribution of radio to his career, before coming out in favor of broadcast royalty payments. The head of the recording industry association RIAA similarly testified that "This year radio will spin almost a billion songs in the United States, leading to billions from advertising. The payment to artists and labels for the use of those recordings, however, will not amount to a penny. As George Carlin famously said, what a ratio." He also stated that because U.S. laws prevent payment for radio performances, U.S. performers are also denied payments when their songs are played in foreign countries, even when these countries require their radio stations to compensate domestic performers.

Continue reading "Fireworks at House Committee Hearing on Performance Rights Bill: Texas Professor Disputes Claim that Broadcasts Increase Sales of Recorded Music" »

On March 4, 2009, the U.S. House Judiciary Committee is set to begin hearings on H.R. 848, otherwise known as the Performance Rights Act -- a bill to require over-the-air radio broadcasters to pay performance rights royalties to performers and recording owners. (fn1) This bill would put AM/FM broadcasters on an equal footing with digital media companies, which already pay performance right royalties. The bill provides exemptions or lower licensing fees for broadcasters with less than $1.25 million in annual revenues, for public broadcasters and for certain incidental and religious performances.

Currently, while over-the-air radio broadcasters pay royalties to songwriters, they are not required to pay royalties to music performers. For example, when "Soul Man" is played on over-the-air radio, Isaac Hayes and David Porter, the songwriters, are compensated. Sam Moore and Dave Prater--the duo of Sam & Dave who sang "Soul Man," are not. (fn2)

Similar legislation has been introduced, unsuccessfully, in prior Congressional sessions. However, this year the bill has the support of House Judiciary Committee Chairman John Conyers and Senate Judiciary Committee Chairman Patrick Leahy -- both of whom were sponsors of the legislation in their respective legislative branches.

This bill is one of several currently under consideration by Congress that could increase royalties paid to artists. Given the general mood for change currently sweeping Washington, it would not be surprising to see one or more of these bills enacted this year.

David D. Johnson is a business lawyer whose practice focuses on litigation and other issues relating to digital media and consumer electronics companies. David can be contacted at (310) 785-5371 or DJohnson@jmbm.com.

Notes:

Fn1 http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.848.IH:

Fn2 www.grammy.com/pdfs/recording_academy/producers_and_engineers/PRA_bullet_points.pdf -