Music Copyright 101: A Brief Rundown Of Legal Status In The United States

“The world of music rights is divided into two major segments: compositions and sound recordings,” said Kenneth Steinthal, partner, King & Spalding, San Francisco, who opened a panel at Yale Law School last week with a baseline understanding of music copyright. Steinthal gave a textbook rundown of the complicated status of music copyright that puts today’s fights with services like Spotify and Pandora in perspective.

Steinthal spoke at a 2 February event called, “Evolution and Revolution in Copyright: The Digital Music Wars.” He was joined by: Jacqueline Charlesworth, general counsel and associate register of copyrights, US Copyright Office; Wade Leak, senior vice president, deputy general counsel, Sony Music; Kevin Montler, director, legal, Global Music at Google. An IP-Watch story to follow shortly will cover their remarks.

[Update: Charlesworth mentioned a US Copyright Office study on music licensing, and the Federal Register notice from the study goes through some of this background as well.]

Steinthal opened by explaining that the creation of the composition – the lyrics, the notes – is a copyrighted work. And that is a “separate universe” of copyright from the embodiment of the composition in a physical sound recording or a digital recording of the song, he said.

In each of these universes, there are three fundamental rights if music is going to be distributed: the public performance right (any time music is made available publicly, whether by radio, tv, restaurant), reproduction right (any copy), and distribution right (meaning sale and distribution to the public).

There’s been a lot of litigation over what public performance means, Steinthal said, especially as it relates to the internet. For instance, it was decided that sending a download to a friend who plays it at home is not a public performance.

It is a “mess” to clear all the copyright hurdles, so Congress has created some ways to assist with getting content to consumers such as compulsory licences in some cases.

Composers and publishers are seen as hand-in-hand when it comes to licensing (publishers are like the public relations arm of composers, as Steinthal put it).

In the past, it was impossible for individual concert halls, tavern owners and the like to clear all of the copyrights on all of the music that might be performed there, so eventually they created the society called ASCAP (American Society of Composers, Authors and Publishers) in the early 1900s.

ASCAP went around knocking on doors and saying they must pay for a single copyright licence, all or nothing, or be sued for copyright infringement, he said. It also engaged in a manner of price fixing, as it offered one price, take it or leave it, for thousands of works, and faced an antitrust suit by the government.

Now ASCAP and the other performance society, BMI, are subject to antitrust consent decrees, which impose obligations on the two societies which effectively create a compulsory licence. If the price for a licence cannot be agreed a “reasonable” fee is decided in New York court.

“The market has worked pretty well until the last few years,” Steinthal said. There are another music society called CISAC and another called Global Music Rights (GMR) that are “causing some of the problems,” he said.

As to sound recordings, “we are the only civilised country in the world that recognises copyright law that does not recognise a full public performance right in sound recordings,” said Steinthal.

So for a radio station, for instance, all the music it is putting out on the airwaves is a public performance, playing the embedded composition. So radio stations have to pay the societies for the composition. “But because in the US we have a very strong broadcasting lobby, the theory has been ‘radio sells records’,” he said.

He noted that in the case of sound recordings, the right is usually not owned by the artist, but rather the music company, the label. And the broadcasters convinced Congress not to give the music companies the same performance right on the composition, because they’re already making a fortune selling sound recordings, and “radio sells records”.

When the internet was spreading in the late 1900s, music companies spread the concern that because people could copy music they would no longer buy it, he said. So they convinced Congress to pass a performing right for digital transmission of sound recordings.

But, he said, the digital performance right is subject to being licensed in two different ways depending on the nature of the service that is digitally transmitting music. For a “non-interactive” service (not on-demand), Congress gave the performance right but made it subject to a compulsory licence (under Section 114 of the Copyright Law), so they could not just shut down any digital music service they want by seeking a ridiculous royalty if they are only making it available through the effective equivalent of broadcast radio on the internet.

If agreement cannot be reached, then it goes to the Copyright Royalty Board in Washington, DC, which determines rates.

For the on-demand services, such as Spotify or Rhapsody, Congress told record companies that is up to them, is totally voluntary, they can withhold the licence or not, so there are negotiations.

But for on-demand “personalised” radio, music companies sued to limit the use of the compulsory licence, so that for a service like Pandora, there might be a limit on how many songs from a single artist can be downloaded in a certain period of time (say, 3 per hour). Congress was saying it would allow a compulsory licence if it mimicked broadcast radio, not as interactive, where the labels have the right to say yes or no.

A further case determined that offering “smart” radio that responds to what a consumer likes is not the equivalent of interactive, which is on-demand, he said.

On reproduction rights, like television, introducing composition into the audiovisual environment, there is no compulsory licence, and the producer has the choice of using one set of compositions or another. “If you don’t like the price, you can use another bit of music,” Steinthal said.

But now, there are server copies, buffer copies, and those are under copyright as well. But they may not require a licence. There is an exemption for “ephemeral” copies, which exist if you make only one copy that exists for six months for a particular performance. But this has come with a lot of grey area, and there has been a lot of litigation. Basically if fully cached copies are made and kept, a licence is needed, he said.

On distribution, the composition has to be embodied in that good (record, CD, download). For this, there is a compulsory licence (under Section 115), but very different from the other compulsory licences. For this one, it is done work-by-work rather than filing once and having it apply to all works. It is necessary to know who the copyright owner is of the sound recording being distributed. This is difficult because information about who owns the rights is not transparent.

“There’s no place to go to get all that information,” he said. “This is a somewhat problematic form of compulsory licence.” He cited actions against Spotify for failing to clear all of the rights associated with distributing content.

On-demand streams are considered the equivalent of distribution. As a consequence, Spotify, even if it sells no music, because it is delivering on-demand streams, is making a distribution of a sound recording. The idea is that people who subscribe would be less likely to buy albums. So Spotify has been sued because it is making 40 million tracks available, and is relying on a patchwork of voluntary and compulsory licences, because they didn’t have perfect information about who owned all the composition rights, especially in what is called the long tail.

In another instance, Steinthal described a situation where in making a scene from a series episode to be streamed (he referenced the current show Transparent) a piano is playing in the background, the composition is being copied as part of the audiovisual work, so just a sync licence is needed. But if there is a juke box playing, for instance, Billy Joel’s Piano Man, then both types of licences are needed: the sync right for composition, and a “master use” right, which is a voluntary reproduction right.

Steinthal took a look at the “huge amount” of litigation in recent years. On the sound recording side, it has mainly been around “what is the right rate” for services like Pandora or iHeart to pay for music online.

The Copyright Royalty Board decides these. A recent trial there changed the old rate of .25 of a cent per play down to about .17 of cent per play. “It sounds fractional, but it adds up,” he said.

For context, he said that when Pandora was paying .14 cents per play, it was giving up roughly half of its revenue of $1 billion.

He also discussed “pre-1972” recordings, as federal copyright law did not protect sound recordings at all until 1972. And there were a lot of recordings produced before 1972, and on-demand services as well as non-demand services such as Sirius XM want to exploit that.

But as services decided not to pay a royalty for pre-’72 recordings based on the federal copyright act, the sound recording community found a way to challenge this at the state law level.

On the composition side, the litigation has focused on the consent decrees. The federal courts in New York overseeing ASCAP and BMI, according to the publishers, have been user-friendly. For instance, on the rates that radio stations pay, they each 1.7 percent of their revenue to ASCAP and BMI and more for CISAC. So a total of about 4 percent of their revenue goes toward the public performance right of composition.

Pandora took the position that they are just like radio, and the court ultimately agreed, and they were paying a little above 4 percent. Publishers looked at the disparity between that rate and the roughly 50 percent of its revenue that it was paying for sound recordings.

Publishers decided to partially withdraw from ASCAP, remove the digital rights and tell ASCAP they cannot licence it anymore, getting away from the consent decree. That would mean they would only be subject to voluntary licensing, and they tried to raise the roof on pricing.

The withdrawal was argued to be a violation of the consent decrees, and the Justice Department started an investigation on whether the decrees should be amended or not. In the course of that, an issue has arisen over “split works.” On the composition side, it is common that the rights in the composition are controlled by multiple entities – co-rights.

Artists such as Glenn Frey and Don Henley have affiliated with GMI, a new organisation not subject to the consent decree. They say they are not concerned that ASCAP and BMI control some share of their work, as long as the artists also control some share, and services like iHeart, Google or Sony Records cannot use their work unless they get a licence from the artist. This is even after the services have paid a fortune for licences to the bigger organisations.

“The implications of this are huge,” Steinthal said. “They’re not just academic.” They affect how consumers can receive services in the US and abroad.

His last point was that the US is the only country in the world to have a statutory damages system for copyright infringement, where the infringer can be liable for up to US$150,000 per work. Which can be tough for services that are trying to do the right thing. “If you guess wrong, you can be sued for millions of dollars,” he said.