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Copyright Law, Capitol Hill and the Music Business: Can This Marriage Be Saved?

On Wednesday, I attended a luncheon sponsored by the Association of Independent Music Publishers. Like last month’s AIMP lunch, the room was packed with my PRO, music publishing and copyright lawyer colleagues. This time it was for a panel discussion on copyright reform and the music business. The panel, moderated by attorney Michael Sukin, consisted of Jacqueline Charlesworth, General Counsel of the US Copyright Office, Steve Marks, General Counsel of the RIAA and David Israelite, President of the NMPA.

Charlesworth, who started the discussion with a brief PowerPoint recap of recent developments, joked that she was asked by Sukin to sit between Messrs. Marks and Israelite – and she did. In the past, RIAA and NMPA were perhaps more frenemies than besties, with sometimes divergent interests. Charlesworth summarized the various House hearings on copyright and the music business as well as the Copyright Office’s music licensing study which is still in progress. She said there is a consensus that Section 107, the current fair use statute, does not need to change as the four statutory factors were adequate guidance for the courts.

Charlesworth also gave a recap of the hearing regarding Section 512 DMCA takedown notices, with most agreeing that the process doesn’t work. She also addressed the status of the proposed Songwriter Equity Act, which I’ve previously discussed, and the RESPECT Act, which would provide that pre-1972 recordings (which are not protected under federal copyright law) would be subject to the statutory licenses for streaming recordings. This would mean that online services would have to pay royalties regarding the streaming of recordings of classics from the Big Band era to the Beatles and beyond. Recently, two courts have determined that even absent federal copyright protection such royalties would need to be paid under California state law.

Steve Marks discussed royalty payments to labels by streaming services and the disparity among them. He said Pandora pays about 50 cents per user per month in royalties to labels whereas Spotify pays $7 per user per month. One is on a statutory license for a non-interactive service (i.e., users can’t select individual songs) whereas the other is interactive, and therefore subject to market rates. You can guess which is which. He said this disparity doesn’t make sense since the user experience is similar and the distinctions between interactive and non-interactive are increasingly blurred. He agreed that the current music licensing “system” is broken, using as an example of one instance where 1500 separate licenses were needed for one 20-song album. I’m thinking that’s an awful lot of split copyrights and samples to be cleared.

Both Marks and Israelite stressed that statutory rate-setting provisions should be amended to reflect a free market benchmark, i.e., what a willing buyer and seller would negotiate. Marks also stated that with respect to music services he favored pursuing new licensing models, including blanket, collective and bundling of rights. He also stated that both labels and publishers should be paid directly by services (i.e., no pass-throughs) with all rights holders having audit rights.

Israelite stressed that like health care reform and immigration reform, copyright reform means different things to different constituencies. To what he characterized as “extreme academics”, copyright reform means looking at copyright through the prism of the public good and getting material into the public domain as quickly as possible. They and their Silicon Valley funders believe that copyright duration should be shortened and that fair use and application of compulsory licenses should be expanded.

By contrast, Israelite said most of the creative community view copyright as a property right that needs to be strongly protected in order to incentivize creators to create new works. Historically, Israelite pointed out, copyright reform had always been about strengthening copyright protections.

Israelite spoke eloquently on the stifling effect statutory and Consent Decree regulations have on songwriters and music publishers, pointing out that labels have about 8% of their income regulated while publishers have 75% of theirs subject to Congressional or Consent Decree oversight. As a result, Pandora pays 50% of its revenue to labels but only 4% of its revenue to publishers who are subject to rates dictated by statutes and Consent Decrees. The panelists all touched upon the current Justice Department review of the ASCAP and BMI Consent Decrees, a topic I discussed here.

Very little of the discussion covered new ground. However, what was interesting was the degree of mutual support that RIAA and NMPA had for their respective interests. For example, Israelite expressed strong support for copyright protection for pre-1972 recordings and a terrestrial public performance right for sound recordings. Similarly, Marks expressed support for Consent Decree reform and to amend the Copyright Act in Sections 112 and 114 to have rates regarding musical compositions set using a fair market benchmark.

This more closely united front is undoubtedly the result of common perceived “enemies” that did not exist historically such as Google/YouTube, Apple/iTunes, Pandora, Spotify and anti-copyright academics such as Lawrence Lessig. None were singled out by name. And of course, the music industry needs these online services as much as they need the content that labels and publishers provide.

While none of the panelists felt that major changes to copyright law as a whole would be forthcoming anytime soon, they did feel that some changes with respect to music could happen in 2015. And something else to watch is RIAA and NMPA’s working on ways to address “micro-licensing” issues: license requests that often aren’t handled because the dollar value is too low to justify the administrative costs. Finding a way to effectively deal with these micro-licenses potentially lead to many millions in additional revenue while helping users whose requests are too often ignored.

A Small Claims Court for Copyright Claims?

Although the shutdown of the federal government has justifiably grabbed most of the headlines, and despite this week [October 3] being labeled “Hell Week” for classical music, something potentially good for composers, self-produced recording artists, visual artists and other artistic creators was announced: On September 30, just before the government shut-down, the Copyright Office released a 155-page report – plus appendices – outlining recommendations for the equivalent of a voluntary small claims court for copyright claims, primarily infringement.

The full report is available here. The majority of the report deals with legal niceties such as constitutional authority for a copyright small claims tribunal, subject matter and personal jurisdiction issues, analogues to other specialized tribunals and the scope of clams this copyright tribunal would handle.

However, the Copyright Office summarized its recommendations as follows:

  • Congress should create a centralized tribunal within the Copyright Office, which would administer proceedings through online and teleconferencing facilities without the requirement of personal appearances. The tribunal would be staffed by three adjudicators, two of whom would have significant experience in copyright law – together having represented or presided over the interests of both owners and users of copyrighted works – with the third having a background in alternative dispute resolution.
  • The tribunal would be a voluntary alternative to federal court. Its focus would be on small infringement cases valued at no more than $30,000 in damages. Copyright owners would be required to have registered their works or filed an application before bringing an action. They would be eligible to recover either actual or statutory damages up to the $30,000 cap, but statutory damages would be limited to $15,000 per work (or $7,500 for a work not registered by the normally applicable deadline for statutory damages).
  • Claimants who initiated a proceeding would provide notice of the claim to responding parties, who would need to agree to the process, either through an opt-out mechanism or by affirmative written consent. Respondents would be permitted to assert all relevant defenses, including fair use, as well as limited counterclaims arising from the infringing conduct at issue. Certain DMCA-related matters relating to takedown notices, including claims of misrepresentation, could also be considered, and parties threatened with an infringement action could seek a declaration of noninfringement.
  • Parties would provide written submissions and hearings would be conducted through telecommunications facilities. Proceedings would be streamlined, with limited discovery and no formal motion practice. A responding party’s agreement to cease infringing activity could be considered by the tribunal and reflected in its determination. The tribunal would retain the discretion to dismiss without prejudice any claim that it did not believe could fairly be adjudicated through the small claims process.
  • Determinations of the small claims tribunal would be binding only with respect to the parties and claims at issue and would have no precedential effect. They would be subject to limited administrative review for error and could be challenged in federal district court for fraud, misconduct, or other improprieties. Final determinations could be filed in federal court, if necessary, to ensure their enforceability.

Addressing the extremely burdensome time and expense for creators to pursue a copyright claim is a good thing and this report is definitely a step in the right direction. For example, the report states that for a copyright case that’s worth less than $1 million, it typically costs over $350,000 to litigate it and around $200,000 of that is spent on “discovery”, i.e., document requests, depositions and interrogatories. Most artists, including composers, don’t have the resources to pursue a copyright infringement claim – or defend one — unless they qualify for representation by VLA or a similar organization.

Wearing my various hats as creator, copyright lawyer and administrator of other’s creative works, I do have some concerns about the report’s recommendations. For example, centralizing the small claims tribunal within the copyright office, even with most matters handled by written submissions and video-conferencing seems impractical. While there is reluctance among the federal judiciary (and copyright claims are exclusive to the federal courts) to create specialized tribunals, it would make more sense, both for the convenience of the parties and to distribute the administrative burden, to have these streamlined procedures available in each federal district.

Alternatively, one might consider the approach for the “circuit rate court proceeding” under Section 513 of the Copyright Act to have the small claims tribunal available in the district court that is the “seat” of each of the 12 Circuit Courts of Appeals (e.g., New York, Chicago, Denver, San Francisco). This did not seem to be addressed in the Copyright Office report.

Another concern is that with a voluntary proceeding, a well-funded party, such as a major corporation, may simply opt out of these proceedings and force a plaintiff to spend resources he or she doesn’t have. On the other hand, there should also be provisions to ensure that frivolous claims are swiftly dismissed and that creators don’t use these procedures to attempt to try to get a windfall in unwarranted copyright damages where the “notice and takedown” procedures under the DMCA would be sufficient.

The recommendation for some form of small claims proceeding is a welcome one, albeit one that should be subject to further refinements. However, given the current Congressional climate, it’s also unlikely to be acted upon anytime soon.

This article was originally published on the ScoreStreet Web Site on October 3, 2013.

Artists and Labels Paid for Radio Airplay?

Composers know that they should sign up with a Performing Rights Organization (PRO) such as ASCAP, BMI and SESAC to make sure they receive royalties for when their works are publicly performed in live performance venues, when broadcast on radio or TV or streamed over the Internet. Most people don’t realize, however, that when a work is played over the radio in the US, the writers and publishers of the composition receive payment for the performance through the PROs but the recording artists and record labels don’t receive a dime. So, whenever a radio station played Frank Sinatra’s recording of “New York, New York”, Kander & Ebb and their publisher got paid, but Ol’ Blue Eyes and Reprise Records did not.

In most other countries, there is a public performing right in a sound recording, but not in the US. There have been attempts over the years to fix this inequity. For example, since 1995, as amended in the Digital Millennium Copyright Act of 1998 (DMCA), there has been a limited public performing right in a sound recording. But, it only applies to “digital transmissions” which basically constitutes streaming over the Internet. SoundExchange was formed to act as a licensing collective, like the PROs, for this growing revenue stream and they pay artists and labels.

Last month, however, something occurred that may be a step in the right direction. Clear Channel, which owns 850 radio stations, and Warner Music Group, one of the industry’s major labels, announced a private deal where Clear Channel will pay public performance royalties to Warner and their recording artists. Clear Channel, apparently, will get a more favorable rate with respect to online streaming, which if you have been following what has been going on with Pandora’s continuing lobbying of Congress to reduce the rates they pay, has been an ongoing battle between webcasters and publishers and labels. Warner, in return, will receive promotion from Clear Channel, which likely means increased airplay, for their artists.

Is this a good thing? Paying artists and labels for the public performance of their recordings is certainly a step in the right direction toward aligning the US with the rest of the world. But at what cost? In exchange for increased exposure on Clear Channel stations, royalty rates for streaming are being nearly cut in half. And unlike the situation with SoundExchange, artists are not directly paid, but will be paid by the label. What is perhaps of even greater concern, however, is that this is a private deal between two industry giants. It remains to be seen whether this will deal set a precedent that will eventually enable all recording artists and labels (including indie, and artist-produced recordings) to collect public performance royalties. It probably won’t happen soon. A Congressional bill that would have given labels and artists a public performing right akin to what composers and publishers have long enjoyed died in committee in 2009. But one can hope – and lobby your local Congressman.

Update: On September 30, right before the government shut down, Rep. Melvin L. Watt (D-NC), introduced H.R. 3219, the Free Market Royalty Act, which would among other things create a public performance right in sound recordings when played on AM or FM radio.

This article was originally published in September 2013 on the ScoreStreet web site.