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Carefully Co-writing without Creative Commons

July 29, 2006 6 comments

Co-writing with your producer, friends, band mates or [other] professional songwriters is a good thing. But remember–you’re creating a piece of property when you write a song (or record a master for that matter, but that will be the subject of another post). This time that property is intellectual property. Like any other form of property, intellectual property has certain rules of the road that can have some twists, turns and dangerous shoals. You wouldn’t build a house with a partner if you didn’t understand the legal issues of co-owning real estate, and neither should you create a piece of intellectual property with someone without knowing at least a bit about intellectual property law, and particularly the law of copyright.

The other thing you should be clear about is that when you record a song, there are two separate and distinct copyrights in play (no pun intended): the sound recording copyright in the recording (registered with the Copyright Office on a Form SR) and a separate copyright in the song (registered with the Copyright Office on a Form PA) . Different people can own the two separate copyrights. For example, if you are an independent artist and you record your own performance of a song you co-wrote, you would probably claim ownership in the sound recording 100% for yourself, but each writer would claim their own share of the song. A writer of the song would not get a share of the sound recording, and vice versa (unless by coincidence one of the writers is also an artist).

When you write a song with someone else, each of you have the right to license the part of the song you contribute–called your “contributory share” of the work. (If you read the U.S. Copyright Act, you will find a reference to “nondramatic musical works” in Section 115, for example. That’s how you describe a song in the Act.) This all sounds fine and way egalitarian.

Some of you may have heard about something called a “Creative Commons” “deed” or “license” to give away your songs. This “license” has achieved some notoriety but is actually poorly thought out if you are trying to make a living at being a songwriter or recording artist. The first thing you should do is read the license. The way Creative Commons sets up the user interface on their webpage, it’s entirely possible that you could release some works without ever having to read the actual license itself. (Creative Commons is also an organization that was at the forefront of the recent anti-copyright legislation in France and is lead by the hardest working man out of show business, the dynamic and oh, so very soulful Professor Lawrence Lessig, whom we affectionately refer to as Larry Love, the Nutty Professor whose nonprofit fiefdom is busily trying to overturn the Copyright Act of 1976.)

Creative Commons is part of a world-wide organization (Friends of the Commons) that is actively trying to increase the number of works in the public domain. Public domain means that no one can claim rights to the work. So if you put your songs out under a Creative Commons license, the anti-copyright crowd is happy, but will you be when you find out you have given up your rights?

You should make sure that anyone you co-write with DOES NOT use or intend to use a Creative Commons license, as this will have some big problems that I will identify. The general point is that Professor Lessig and his fellow travelers in the anti-copyright movement have come up with what they think will be a music industry equivalent of a “free software” license (aka the “GPL”) without having any experience in the music industry or knowledge of how we work. So it’s fair to say that this Creative Commons world is fine for academics and amateurs, but has no role whatsoever in world of the professional musician. Plus–if you really do want to give your work away, you don’t need Creative Commons to do it.

The first problem with Creative Commons is there is no Creative Commons “legal code” for a song. Given that Creative Commons and their fellow travelers the Electronic Frontier Foundation, Public Knowledge and other front groups don’t have a clue about the music business for one thing and what a song is for another, this is not surprising. Next time you come across one of these people, count how many times they use the word “song” when they mean recording, and vice versa. (“Legal code” is what Professor Lessig calls the Creative Commons license. Cute eh? Computer code, human code, get it? They are nothing if not austere. I for one find something truly odd about the geek tendency to try to express human emotions and actions in terms applicable to machines. Makes me wonder what is going on inside those pointy heads for machines–unlike humans–are not responsible for their actions. Just ask Grokster.)

Another of the many problems with Creative Commons is that there is no concept of co-writers. Reading the license, you will see a reference to “Original Author”. That’s Original Author singular. In the Creative Commons world, there are no co-writers, I guess. Dealing with co-writers would make it a bit complicated, as what if one author wanted to give their share of a song away and others didn’t? What would that mean exactly? Confusing, to say the least. This is yet another reason why you are better off not to co-write with anyone who wants to use a Creative Commons license for their share of a work.

It is also not clear to me if the “original author” retains any rights under a Creative Commons license. For example, if the “original author” puts the work in what is effectively the public domain, does that mean that the original author can still exploit the work commercially? Or more accurately, why would the “original author” want to exploit the work commercially if everyone else could use it for free? I don’t know, but if anyone figures it out, please let me know.

There is also a rule of copyright law that is similar to rules regarding real estate. If two or more people own an undivided interest in a piece of land, then any one of them can grant non-exclusive licenses in the entire piece of property, so long as the terms of the license are “reasonable” and the co-owner granting the license accounts to their other co-owners for their share of the license fee. The same applies to copyrights. So if you have one writer who grants a Creative Commons license in the entire song….What does that mean? I have no idea, but do you really want to take a chance?

Fast forward to the day you sign your first record deal (indie or major). You will be asked to grant a “mechanical” license to the record company, i.e., a license to mechanically reproduce the song in the records you make. This concept of “mechanical reproduction” also includes digital downloads.

Even if the rights you are going to be asked to grant stopped right there, you would have a problem if you don’t control 100% of the song. If the recording you make of the song is the first time that the song is released on a record (or a “phonorecord” as defined in the Act), then that use requires the consent of all the writers. Once the song is released on a phonorecord, the song is subject to the compulsory mechanical license (and just the mechanical license is compulsory) under Section 115 of the Act. That means that your co-writer can stop the initial recording, but no recording after that.

Your co-writer can, however, refuse to take a reduction in the statutory royalty rate provided under Section 115 of the Act, and your co-writer can also demand pretty much whatever they want in the way of a fee for any other use of “your” song. That means that if you have a falling out with your co-writer, they can make your life miserable. Or, worse yet, if your co-writer should happen to die or fail to be compos mentis, your co-writer’s heirs may suddenly be making those decisions–enter the crazy spouse problem.

If you sign a major label record deal, you will be asked to agree to a controlled compositions clause. This is a contract provision that says we don’t care what the Act says, here’s your deal on mechanical royalties. That statutory rate? Not for you. Your rate is going to be 75% of that rate. 17 songs on a CD? Fine–but we’re paying you for 12 (or more likely 11). Free goods? We don’t get paid, so you don’t get paid.

And that co-writer? If the co-writer insists on full statutory calculated outside of the controlled compositions rate, that’s fine–but we take the excess out of your mechanicals.

If you have a few co-writes and they account for 25% or more of the songs, you really start to feel that dip. And it’s all in the control of your co-writer.

Let’s say that you have an opportunity to get tens of thousands of dollars plus much more in promotional value by having a song in the end titles of say Miami Vice. Let’s say your co-writer (or the crazy spouse) hates mohair. It’s all over as a practical matter, because the film will require 100% of the copyright in order to issue a license and if they get wind that there’s a mohair hater in the wings, they’ll move on.

Another problem–splits. What if you thought that you wrote the song 50/50, but oops…turns out it was 75/25 in the mind of your co-writer when there’s money to be made. Or at least that’s what he told ASCAP when you checked the song registration a year or so after you wrote the tune. Not fun.

And what if you put a work out into the world under a Creative Commons license? No problem, unless you have an issue with not being able to terminate that license for 35 years–duh, of course you do, so don’t use the Creative Commons license unless you are absolutely sure you are never, ever, ever going to want to commercially exploit that song–such as recording it for a major label. This is assuming you can figure out which of the Creative Commons licenses apply to songs, and if you do, please let me know because I’m not smart enough to figure it out. It also assumes that you have a perfect vision of the future, which I for one do not. Just in case the only hit you ever write is the one you gave away under the Creative Commons license, better to avoid those people altogether.

So how do you avoid all this stuff as an artist-writer? It’s actually pretty simple but it requires a bit of discipline and some attention to detail. You sign a simple co-writer agreement that covers some basic points:

1. Say what the splits are–in writing–and divide up music and lyrics;

2. If you get a record deal, your co-writer agrees to take your controlled compositions rate, subject to an obligation to pay your co-writer or arrange to have her paid;

3. If you want to license for a film (or one of your own music videos), you have the right to negotiate and contract for 100% of the song, subject to an obligation to pay your co-writer or arrange to have her paid;

4. You get to record the song first; and

5. Never write with anyone who wants to use a Creative Commons license.

Note that if your co-writer already has a publishing deal, you will need to get that co-writer to get their publisher to approve whatever the co-writer is agreeing to, since the co-writer has way more than likely given up those rights to their publisher.

There are some other bells and whistles that should go into one of these documents, which is why you really should consult a lawyer to come up with the form for you (and DON’T change it), leave the splits blank, though.

If you take a little bit of time to get this done when it’s all warm and fuzzy, you will be so glad when if it all falls apart later, but you want to be able to use your songs.

Webcasting Royalties and SoundExchange

July 25, 2006 Comments off

(A version of this article first appeared in Music Connection Dec. 2003.  Information in this article may be out of date do not rely on it.  Check with SoundExchange at www.soundexchange.com)

When a record is played on “terrestrial” broadcast radio in the United States (i.e., over the air), who makes money? Since a radio broadcast is a “public performance” of the song in the record under the U.S. Copyright Act, the songwriters and publishers make money through their performing rights organization, whether ASCAP, BMI or SESAC. But does the artist? Does the session drummer? Does the record company?

Not in the United States.

If the same record is played in Canada, the United Kingdom, Japan, or any one of a host of other countries, not only do the songwriters and publishers get paid a royalty through their PRO, but the artists, session players and copyright owner of the recording also get paid through a sound recording PRO.

But—due to changes in US law in the 1990s–if the same record is played in the U.S. on Yahoo! Music, the new Napster, or on DMX, XM Radio or Sirius, not only do the songwriters and publishers get their royalty, but the artists, session players and vocalists and record companies also get a royalty through a new PRO for sound recordings.

Weird, you say? True. But no stranger than the tax laws. Just like the tax laws, our copyright laws are the result of deals cut in Washington between interested parties, and the deal that cut out sound recordings from a performance royalty was made a long time ago between the broadcasters and the record companies. The goal of the recording community is to bring the U.S. in line with the laws of most other countries–the broadcasters oppose that goal because it makes the music they play more costly, and they have had the clout to win the issue in Washington, just like so many other changes in the laws that have created the most severe media consolidation in the world. If you were a cynical person, you might say that’s because there is a radio station in every Congressional district, but record companies in only a few.
Congress amended the Copyright Act in the 1990s to establish a limited public performance royalty for digital transmissions of sound recordings. “Digital transmissions” includes satellite radio like XM, webcasting (or “Internet radio) like Yahoo! Music, and the Internet broadcast (or “simulcast”) of terrestrial radio stations like when your favorite radio station simulcasts its broadcast signal over the Internet. Although this limited performance right is a small step forward, it is a huge victory against the broadcasters, particularly as the industry moves toward digital radio.

These new laws established what is commonly called a “statutory” or “compulsory” license to stream sound recordings as long as the music being streamed complies with the restrictions on the license limiting the use to public performance, sequencing, and a few other restrictions. (This is the same license that is at issue in the XM Radio litigation.) This statutory license does not include on-demand streaming or downloads (such as the Napster subscription service). The statutory license eliminates the need to get a separate license from each copyright owner as long as you comply with the rules and pay the royalty. (We already have a compulsory license for mechanical royalties paid on songs when a digital or physical record is sold.) The statutory license only applies to streaming, not to downloading or any other interactive use of music that involves the user choosing which specific tracks they want to listen to.

These amendments to the Copyright Act divided sound recording royalties among four groups: copyright owners (50%), featured artists (45%), nonfeatured musicians (2.5%) and nonfeatured vocalists (2.5%). “Copyright owners” typically means record companies, but independent artists, or any artist who owns their own recordings, qualifies as a “copyright owner.” It does not include songwriters or music publishers, although their right to public performance income requires no change in the law.

The Act also established the first sound recording PRO in the U.S. called SoundExchange. Until recently, SoundExchange was a division of the Recording Industry Association of America, but was recently “spun off” to be a stand alone nonprofit organization with a board of directors divided equally between artist and sound recording copyright owner representatives.
Through a rather tortured set of regulations (which have the force of law), SoundExchange collects royalties from the subscription radio providers, webcasters and radio simulcasters, and pays that money out to the four groups. The nonfeatured musicians and vocalists, also known as session players and singers, have their money paid to trust funds established by the American Federation of Musicians and the American Federation of Radio and Television Artists. Featured artists and sound recording copyright owners are paid directly by SoundExchange.

While the Congress established how the pie was to be split in 1995, they only set a rate for certain satellite radio providers (effectively 6.5% of gross revenues). They didn’t establish any other rates, though, and the interested parties could not agree among themselves on what the rate was to be. That started a long process of negotiation in a Copyright Arbitration Royalty Panel that ended last year, and was supplemented by a law protecting small webcasters a few months later after the small webcasters strongly objected to the new rates.

Because the CARP took so long, the rates that were set would have expired almost immediately. No one wanted to go through another CARP, so the interested parties negotiated a new rate that will last until the end of 2004. The new webcasting rate is, more or less, $0.000762 per performance. TTTThe structure is a little complicated, and doesn’t cover certain groups such as simulcasting of radio stations, noncommercial webcasters, or small webcasters.

You can review the rates on the SoundExchange website (http://www.soundexchange.com/) or on the U.S. Copyright Office website (http://www.copyright.gov/).
n Royalty Panel. not agree among themselves on what the rate was to be.

The Role of SoundExchange

Persons using the statutory license, such as Yahoo! Music, must account and pay royalties to SoundExchange. SoundExchange must then account to individual members of the four groups. Establishing the databases for Sound Exchange to track plays and pay royalties is a monumental undertaking. Because the compulsory license is unlimited in scope, SoundExchange effectively must be prepared to account for every recording in the history of recorded music, both U.S. and foreign repertoire. SoundExchange has received massive downloads of label copy and accounting data from its record company members to establish its own database for accounting. This means that whatever information that an artist’s record company has in its accounting system is likely now in the SoundExchange database, which is updated periodically.
It is important to note that featured artists who are signed to record companies are paid their webcasting royalties directly—regardless of whether they are recouped in their accounts with their labels.

Independent artists, however, may not have been included in the SoundExchange database. You can confirm whether you are listed in the database by signing up for an account on the “PLAYS” system at http://www.soundexchange.com/. Remember, if you are a “featured artist”, that just means that you are the artist who is featured on the recording, not that you have to be signed to a record company, so independent artists qualify for webcasting royalties, too, and probably qualify as copyright owners as well.

The Price of Liberty is Eternal Vigilance

It would be a very unusual result indeed if every piece of data in the SoundExchange system was exactly correct, and I frankly don’t think it’s fair to expect perfection under the circumstances. I will say that I believe that John Simson, its Executive Director, and his staff are committed to running a tight ship and giving people a straight count. I would strongly suggest that everyone with a stake in this royalty pool check to confirm if you are in the SoundExchange system, and if you are that your information is correct. You can do this by yourself by getting a PLAYS account and looking up your recordings. If you haven’t registered yourself with SoundExchange, you should assume that there’s something incomplete or incorrect about the data and you need to review it to make sure it’s complete and correct. If it’s incorrect, the SoundExchange staff will work with you to correct it. In my practice, the two most common problems are absence of information, or someone incorrectly claiming copyright ownership. Absence of information is often providing the missing link on data that is in the database, or inputting data for the first time.

The trickier problem is the problem of the incorrect copyright owner. Most of the time I believe this to be innocuous and innocent mistakes. For example, if a major label distributes an independent label—and only distributes, i.e., takes no ownership interest—they are not entitled to the copyright owner’s share of royalties because they are not the copyright owner. Yet very often the distributor ends up being reflected in the SoundExchange database as the copyright owner.The more insidious problem—and let’s just call it a head scratcher without casting aspersions or assigning blame—is when a content aggregator is reflected as the copyright owner when the artist is not registered. This means that the SoundExchange database recognizes that independent artist Joe Smith is the artist for Joe’s Song but has no contact information for Joe Smith. However, Joe Smith has done a digital distribution agreement with one of the aggregators to represent his catalog and SoundExchange reflects the aggregator as the copyright owner and pays the copyright owner’s share to the aggregator. No aggregator agreement should ever allow an aggregator to do this, or to have anything to do with SoundExchange in my view. It’s not really SoundExchange’s fault, either, as they can only do so much to police the information they are provided in the first instance. At the end of the day, its up to each interested party to make sure that their business is organized and that they are correctly registered with SoundExchange, just as they would expect to be correctly registered with ASCAP, BMI or SESAC.
Foreign Royalty Collection and the Future
At the moment, the money that SoundExchange collects and pays is pretty small. Most royalty checks are less than $500. However, SoundExchange has begun collecting foreign public performance royalties which can be real money. The total performance royalties in the European Union alone are in excess of $500 million annually. SoundExchange currently has reciprocal agreements with its counterparts in the United Kingdom, Mexico and the Netherlands.But the real significance may arise when and if Congress passes legislation that extends these royalties to regular radio and television broadcasts. SoundExchange will very likely be the administrator of these royalties, and that will be real money. So it’s a good idea for artists to get their business straight with SoundExchange now.

Betting the Company: The Inno Player May Take Down XM Radio

July 14, 2006 2 comments

You may have read in the news about a lawsuit against XM Radio regarding its “Inno” player. The issues in the lawsuit are of a pretty technical nature, but worth knowing about. XM’s woes just seem to multiply (see WSJ: XM Loss Widens and User Outlook is Lowered Again “Sirius Satellite Radio, Inc., the company’s competitor, has been trouncing XM in that retail market.”) , and we XM music fans hope they can find their way back to fulfilling their great music potential. Hopefully the case will settle, as XM is one of the few bright spots on the musical horizon these days, and it pains me to see them get on the wrong side of the creative community. (I’m one who would love to see Lee Abrams as chair of the FCC, so go figure.)

Sirius Satellite Radio (NasdaqGS: SIRI) and XM Satellite Radio (NasdaqGS: XMSR) (the satellite radio services) each recently released controversial new music players tied to their respective satellite radio services and manufactured by Pioneer. Each service was put on notice by the U.S. creative community that the players exceeded the scope of the statutory license for sound recordings available to satellite radio services under Section 114 of the Copyright Act (comparable to the webcasting license). Sirius settled with a number of record companies in a confidential agreement, and was not sued. (Section 114 royalties are largely administered by SoundExchange (http://www.soundexchange.com/) and if you’re an artist or record company you should sign up with SoundExchange if you haven’t.)

XM Radio failed to settle, and was sued for copyright infringement on May 16 by a group of record companies (“XM Satellite Shares Drop on Lawsuit”) seeking statutory damages of $150,000 per track. Note that the lawsuit does not attack the XM player, but merely the integration of the XM radio service in the player. This distinction will hopefully make sense further on in this writing.

XM enjoys a blanket statutory license to publicly perform sound recordings under Section 114 of the Copyright Act (subject to certain rules). The blanket statutory license does not cover downloads or other distributions. Downloads are set by contract between copyright holders and online services, not by statute.The Inno has a variety of features, but the offending ones allow XM subscribers to use a software interface to search for tracks by a particular artist across all XM channels, and to download tracks that were broadcast onto the player, play MP3 files, and link out to the Napster music service to purchase permanent downloads. (This is a bit of a gloss on the functionality of these players and I suggest you review the player specifications if you want to know how they work in detail.) That is—the copying function of the Inno is inextricably linked to the XM service.

At the heart of the XM lawsuit, then, is the integration of the XM satellite radio service with the “Inno” player and XM’s unauthorized extension of its public performance rights to a
distribution by means of transmission to the Inno. XM’s advertising for the Inno clearly refers to the XM service as the “mother ship” from which all content flows to the Inno, so there seems little doubt that XM intended to sell players by making users think they had the ability to copy music onto the Inno from the XM service.

Given the recent ruling by the U.S. Supreme Court in the Grokster case, XM’s marketing may well induce copyright infringement, which is a separate basis for a law suit. The problem for XM is that the statutory license does not cover distribution to the Inno player, just performance on the radio service. Rumor has it that XM took the position—aggressively–that somehow XM had all the rights it needed for the use of content downloaded to these players. This is, as I understand their arguments, because they already had the rights under the 1992 Audio Home Recording Act (“AHRA”).

Although XM is not required to reply to the recording community’s lawsuit as yet, they will shortly absent a settlement. I recently got an idea of what XM’s defense might be when I was a panelist at a Congressional seminar hosted by the Progress & Freedom Foundation at the U.S. House of Representatives in Washington, DC with fellow panelists from the RIAA and the Consumer Electronics Association. (XM was invited to speak, but declined due to the pending litigation a fair position.)

For some reason that eludes me, the CEA (and perhaps XM, although we don’t yet know what their arguments will be) seems to be under the impression that if XM’s device manufacturer Pioneer pays the AHRA levy on the Inno player that the AHRA provides some form of content license, all for a one-time payment of $8 or so to download content all day to the Inno.

Sorry guys, but that is an absurd position. As an old professor of mine would say, please tell me you didn’t bring a knife to a gunfight, please tell me you brought me something. No statutory content license in this country or any other country I know of caps the fees. And also realize that AHRA royalties are a pool of money administered by the Copyright Office and not tied to usage. This is the way one would construct a royalty if the intention was that it be in addition to a separately negotiated distribution license and payment. The AHRA royalty is paid to the industry as a whole to offset harm of DAT and other digital audio players, not to specifically compensate anyone.

Note that there is no license to works of authorship expressly granted anywhere in the AHRA. Unlike every other statutory license in the Copyright Act which are described as an express limitation on the exclusive rights of a copyright holder (such as XM’s satellite license under Section 114 and the statutory mechanical license under Section 115) yet it appears that XM thinks that the AHRA grants them what would be the most sweeping of all statutory licenses with a few words in a 14 year old statute that has never been revisited and has been barely litigated.

XM’s reliance on the AHRA is highly questionable in my view, as AHRA was originally crafted as a settlement of a dispute between the creative community and consumer electronics companies over the digital audio tape player. It essentially established serial copy protection for creators, a “levy” for certain kinds of players and certain blank media, and not much else.

The leading copyright scholar David Nimmer notes in Nimmer on Copyright that the AHRA grew out of the consumer electronics market of the 1980s, and focused on DAT recorders. That technology failed to ever make much penetration into the consumer marketplace. The Internet is now the primary battleground for copyright issues, but the AHRA’s structure, which expressly excludes computers, places the Internet, and I would argue activities primarily utilizing the Internet or digital transmissions, outside the scope of AHRA.

One can almost get nostalgic about the days when our biggest problems were DAT players and serial copying in DAT recorders. One could argue that if the serial copy management protections of the AHRA had been extended to computers, that one move might have stopped a lot of damage. Perhaps we should thank XM for the reminder.

It appears that XM believes that they had found a loophole in Section 1008 of the AHRA that XM appears to believe would permit XM subscribers to download copies of tracks from the satellite broadcast with no payment other than the nominal AHRA royalty which is a flat fee based on the transfer price of the player concerned, capped at $8 in 1992.

Section 1008 actually says: “No action may be brought under [the Copyright Act] alleging infringement of copyright [1] based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or [2] based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.”

Diamond Multimedia is the principal AHRA case (filed in 1998 and settled in 1999), which involved the Rio MP3 player, the original off-desktop MP3 player. If XM intends to try to squeeze itself into a position to get some benefit from the Diamond Multimedia case, a couple of points are worth noting. First, Section 1008 was not at issue in Diamond Multimedia, and nowhere does the case hold that Section 1008 provides the kind of omnibus immunity for digital copying that XM will likely invoke. Second, if XM is otherwise liable for copyright infringement, Section 1008 does not provide it with protection. There is an inherent logic in this view of Section 1008. An infringer who happens to fit within the somewhat ill-defined parameters of the AHRA and who also commits an act of infringement outside of the AHRA (such as exceeding the scope of the statutory satellite radio license) cannot turn to Section 1008 for absolution of liability or culpability.

However much the forces of “innovation” wish to carve out a hallowed place for themselves in the law, XM’s view (like Napster and others those who asserted the position before and were rejected) would swallow the entire Copyright Act in Section 1008. (This postulate is well argued in the “friend of the court” brief written by David O. Carson, General Counsel of the Copyright Office, and Scott McIntosh of the appellate division of the Department of Justice, filed on behalf of the United States in the Napster case.)

The record company plaintiffs in the XM case have not alleged any claims against the Inno player itself, and all their claims are against the XM service. Therefore the first thing to consider is whether use of the XM service in connection with the player is infringing, and not whether the player itself is unlawful.

The labels may find that not including a claim against the player was a tactical blunder. However, the U.S. Supreme Court in Grokster made it pretty clear, I think, that it is not looking for an opportunity to revisit Sony. One can argue that Grokster was a silly case and the 9th Circuit should have dealt with the issue rather than handing its superiors such bad facts and legal analysis. Even so, the Court could have taken the opportunity to revisit Sony, but didn’t, so my guess is that the player is probably protected under Sony Betamax if what appear to be non-infringing uses are found to be substantial. Said another way, it’s not worth fighting about—which is probably why the record company case is solely directed at the XM service, not the player.

Publishers and songwriters have not joined the suit as yet, but clearly could do so if they chose (there is a three-year statute of limitations on copyright infringement claims, so the publishers and songwriters have the better part of three years left to file their action at a moment of their choosing). Realize that if there is an infringement of a sound recording there is almost always a separately actionable infringement of a song as well. Whatever the damages award ultimately is for record companies (on the sound recordings), the publishers would likely have the right to a nearly equal amount. The fact that a publisher may be owned by a record company’s parent corporation (e.g., Warner/Chappell is owned by Warner Music, Inc., which also owns Warner Bros. Records) is of no consequence as the copyrights at issue are distinct and separate.

There are those who argue that there’s no difference between the Inno’s functionality and taping off of terrestrial radio. When I was a teenager I used to tape off of broadcast radio, and I distinctly remember staying up until 3 a.m. to tape “Three O’Clock Blues” by B.B. King off of KYOK’s air in Houston, Texas. Of course then, as now, there was no public performance right for sound recordings on terrestrial radio (a topic for another column) and the tape recorder I used was not locked into KYOK’s signal, which was a good thing for me when I wanted to tape “Brown Eyed Girl” by Van Morrison off of KILT’s broadcast. Neither KYOK nor KILT delivered the track for me to my tape machine. Times were hard. If we’d had snow, I would have walked to school in it.

So, if XM intends to litigate this case, they may well be betting the company. I look forward to reading their answer to the record company complaint as it seems highly unlikely to me that they will have the better argument, but then I’m just a country lawyer and not as smart as these city fellers.

For more information:

XM Radio: www.xmradio.com

Sirius Satellite Radio www.sirius.com

Consumer Electronics Association www.ce.org

Recording Industry Association of America www.riaa.org

Progress & Freedom Foundation www.pff.org

IFPI to Sue Yahoo China

July 3, 2006 Comments off

The International Federation of the Phonographic Industries (IFPI) is threatening to sue Yahoo! (NasdaqGS: YHOO) for its Chinese web service. Welcome to the global copyright wars. We are now about to see what truly strange bedfollows Lawrence Lessig has engaged. Most of the copyright infringement in places like China is not done by the college kids that Lessig and his fellow travelers are so comfortable with–it’s done by real bad guys who do lots of other really bad stuff. They don’t call their cults “Free Culture” they call theirs “triads”.

Going up against copyright infringement in places like Russia and Asia requires considerable chutzpah, and the IFPI has been doing it for decades. I would love to see the pasty faced geeks and academics from Stanford having a sit down with the home boys from Hong Kong. That would add a whole new meaning to “copyleft”. The biggest counterfeit CD operation in Russia, for example, was found operating inside a maximum security prison in Novosibirsk at the direction of prison authorities (their defense was that they didn’t know they were infringing copyright–must have been fans of “Free Culture”).

The Yahoo!ligans of this world also need some comeuppance after their acquisition of the Webjay pirate site, and operating a search engine that clearly perpetuates illegal file trafficking. It’s a pity that it has to be in China, but better there than nowhere.

John Kennedy, the head of IFPI is quoted in the International Herald Tribute as saying, “It’s quite strange to see entities quoted on public stock exchanges trading with such blatant infringement that they could get a huge damages award,” Kennedy said. “If I was a chief executive, I’d be nervous. If I was a shareholder, I’d be nervous.”

But let’s not get too indignant–it wasn’t so long ago we had dancing cows chanting rip, mix, burn in this country.

The exact phrasing of John Kennedy’s statement is interesting given the ongoing lawsuit by Universal Music Group and EMI Recorded Music against former Napster interim CEO Hank Barry, Hummer Winblad Venture Partners, John Hummer and Bertelsmann.

Solving the Music Subscription Service Problem

July 3, 2006 Comments off

(Copyright 2006, Christian L. Castle, all rights reserved. This piece first appeared on my Music Legal column on Kings of A&R)

There are many legal and business problems that have slowed development of digital music services. One of them is clearing the rights for songs for music subscription services that permit on-demand streaming of sound files.

The same problem exists for permanent downloads. However, record companies have agreed to take responsibility for mechanical licenses for permanent downloads on U.S. based online services, the so-called “pass through” license that is so despised in publisher and songwriter circles.

Record companies have not, however, agreed to assume responsibility for the payment of royalties for on-demand streaming as their lawyers don’t believe their rights under mechanical licenses and the Copyright Act extend that far.

Even so, one thing is clear—due to the highly fragmented state of publishing rights in the U.S. and the correctly cautious hesitancy of digital music services to expose themselves to the “hounds of hell” copyright litigation that is far too common in the online world—without the labels agreeing to take responsibility for licensing permanent downloads, it is not an overstatement to say that the launch of the iTunes Music Store (and most other digital services offering permanent downloads) would have been substantially delayed if it happened at all.

The Section 115 Reform Act, or “SIRA”, or H.R. 5553, proposes an entirely new structure for the way online royalties are licensed and collected. While the bill is still being negotiated and a Senate version has yet to be introduced, there are some constructs that are likely to stay in the bill, so for this writing we will focus on the forest and not the trees.

The current state of affairs that prompted SIRA is not for lack of trying. In 2001, the Harry Fox Agency and the Recording Industry Association of America agreed a license (http://www.harryfox.com/docs/FinalRIAAAgreement.pdf) for on-demand streams for all music publishers represented by the Harry Fox Agency—the only problem was that no rate was specified, although the RIAA paid advances. It was anticipated in 2001 that a rate would be established within a year. It is evidence of how contentious this issue has been that there is still no rate. This, too, is one of the contributing factors to SIRA.

On-demand streaming services such as Yahoo! Music, AOL Music, Rhapsody, Napster, and MusicNet struggle to have a robust offering for many reasons, but chief among them is the inability to clear publishing. There is no one-stop shop for publishing licenses as is the case in most other countries. Under the current law, the Harry Fox Agency, for example, licenses only those publishers who have elected to use HFA’s administrative services. This is probably about 70% of U.S. copyrights. Even setting aside the fact that HFA may only represent part of a song, there are still a good 30% of U.S. copyrights that are not represented by HFA or by any one-stop type licensing entity.

While one may well be reluctant to have the government any more involved in our business than they already are, on-demand streaming is an area of our business that cries out for a statutory solution due to the severe fragmentation of the publishing community. While there has been a long history of a compulsory “blanket” license for permanent copies that has been extended to permanent downloads (like iTunes), there is a “new” license required in the United States that pays a mechanical royalty for the temporary copy created by audio-only on-demand streaming, called a “streaming mechanical” (which also covers songs in “tethered” downloads). This is in addition to the public performance right licensed by ASCAP, BMI and SESAC—and a performance license is still necessary under SIRA.

If you’re like most people, your eyes are glazing over right about now, but if you are a songwriter, music publisher, artist, record company or digital music service, or representative of any of these, it’s important to understand what’s going on, because there is a bill in Congress that is going to change the status quo for the better of the entire industry.

SIRA establishes a statutory blanket license for on-demand streams and tethered downloads, as well as a collection and licensing system featuring “designated agents” as the licensing agents and collecting agents for royalties under the blanket license. (The bill does not set a royalty rate for the blanket license, which will be set by the copyright judges in a Copyright Review Board, a special court for copyright issues in Washington.)

A designated agent must be an entity experienced in music publishing royalty licensing that has collected no less than a 15% share of the music publishing market, and has been approved by the Copyright Office as a designated agent.

Designated agents are allowed to represent songwriters or publishers for purposes of the blanket license, and can collect monies on behalf of the songwriters or publishers they represent. A copyright owner can “opt out” of the designated agent system if they like, and represent themselves in a voluntary license with digital music services, but they must do so for their entire catalog. As drafted, SIRA prohibits copyright owners from refusing to license to a digital music provider, although they can set their own terms. This is not very different from the long-standing compulsory license regime for mechanical royalties which apply to “phonorecords” including permanent downloads.

If a songwriter or publisher does not contract with a designated agent or “opt out”, they will be represented by the “General Designated Agent,” a flavor of designated agent. The “General Designated Agent” will most likely be the Harry Fox Agency. The General Designated Agent may also act as a designated agent, meaning that songwriters and publishers can contract with the GDA just as they would a designated agent, so the GDA doesn’t solely get those who haven’t chosen a designated agent or opted out.

One of the most interesting and groundbreaking points in SIRA is that the direct costs of creating and maintaining the licensing structure are to be borne in part by the licensees. While one may argue that costs of licensing regimes have been passed through in the past, SIRA specifically places responsibility on the licensees to bear some of the start-up costs of the regime.

There are still issues to be resolved, not the least of which is how to deal with the ability of designated agents to charge their administrative costs against monies they collect but for which they cannot identify a royalty recipient.

There are many other aspects of SIRA, but these are the cornerstone rules that are not likely to change. It is unclear at this writing if the bill has a chance of passing in what remains of this session of Congress, but if it does not it will surely be reintroduced in January 2007 and some version of it will likely be presented to the President for signature in the next Congress.

As an observer of copyright law and legislation and practices in the music publishing industry, I would suggest that whether or not you agree with SIRA, David Israelite and his legislative team at the National Music Publishers Association and their counterparts at the Digital Media Association have done a remarkable job of steering a contentious issue through many interested parties and getting a bill introduced on a topic that has stymied music publishers and digital music services for nearly a decade.

For further information:

Subcommittee on Courts, the Internet and Intellectual Property http://judiciary.house.gov/committeestructure.aspx?committee=3

Copy of current version of H.R. 5553:
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.5553:

U.S. Copyright Office: www.copyright.gov

National Music Publishers Association: www.nmpa.org

Digital Media Association: http://www.digmedia.org/

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