Developments in the Legal Landscape of Digital Music

by Serona Elton

Over past six months or so, after the publication of my article “The Ever Changing Legal Landscape of Digital Music," the music industry has seen a number of additional interesting and important legal issues raised and, in some cases, resolved.

This article summarizes most of the recent developments. Where possible, I have provided a link to the relevant PDF. Please refer to my article in the Spring 2009 eZine, which provides information on how to establish access to the Federal Court online system, PACER.

If you are unable to find the documents referenced below, feel free to email me at selton@miami.edu and I will email you the PDFs.

Proposed legislation to create a terrestrial broadcast performance right for sound recordings
Performance Rights Act
H.R. 848, S. 379, 111th Congress

Summary:
This bill, labeled the Performance Rights Act (officially titled “To provide parity in radio performance rights under title 17, United States Code, and for other purposes”), was reintroduced in the House and Senate in February of 2009. While I originally reported on its existence in the Spring 2009 MEIEA eZine, several developments have occurred since then. In March, public hearings on the House bill were held. Witnesses included Billy Corgan, Mitch Bainwol, Paul Almeida, W. Lawrence Patrick, Stan Liebowitz, Ph.D., and Steve Newberry. Click here for a transcript of the hearing.

In May, the House Committee on the Judiciary recommended the bill be considered by the House as a whole. The Senate bill is still sitting with the Senate Committee on the Judiciary, although a vote is tentatively scheduled for October. If the Senate bill makes it out of committee, the next step will be a joint-committee mark up of the bill, followed by a possible vote on the bill by Congress before the end of the year. Currently, the House bill has 45 co-sponsors, while the Senate bill has six co-sponsors.

Local Radio Freedom Act
H. Con. Res. 49, S. Con. Res. 14, 111th Congress

Summary:
On the flip side, concurrent resolutions were introduced in the House and Senate in February of 2009, supporting the “Local Radio Freedom Act”. The resolution declares that Congress should not impose any new performance royalty on the broadcasting of sound recordings over-the-air. Currently, the House resolution has 250 co-sponsors, while the Senate resolution has 24 co-sponsors.

The battle over this legal issue has gotten quite heated. Entities such as the Recording Industry Association of America (RIAA), the National Association of Broadcasters (NAB), and the musicFIRST Coalition are all major players in this story. This is an issue that music industry students will want to stay up to date on, involving different legal, philosophical, and financial aspects of the industry, with a touch of seventh-grade civics thrown in.

Appointment of Intellectual Property Enforcement Coordinator
The Prioritizing Resources and Organization for Intellectual Property Act of 2008 (PRO-IP), was signed into law in October of 2008. In addition to increasing civil and criminal penalties for trademark and copyright infringement, it establishes a new executive branch office, the Office of the United States Intellectual Property Enforcement Representative (USIPER). In September of 2009, President Obama appointed Victoria A. Espinel to be the first Intellectual Property Enforcement Coordinator. Her appointment has yet to be confirmed by the Senate.

Webcaster Settlement Act of 2009
On June 30, 2009, an extension of the Webcaster Settlement Act of 2008, which expired on February 15, 2009, was signed into law. The amendment extends the act to another 30 days from the date it was signed. The Act allows for a settlement agreement regarding royalty rates associated with the non-interactive digital transmission of sound recordings, between a group of webcasters and the SoundExchange, to become effective and binding on all copyright holders upon submission to the Copyright Royalty Board and publication in the Federal Register.

Additional rate agreements reached between the SoundExchange and webcasters
The Webcaster Settlement Act of 2009 opened up a negotiation window of 30 days from the end of June. During that time, the SoundExchange entered into a number of important rate agreements.

One was with “pureplay” webcasters. This hugely important agreement sets up an alternate set of rates to those set by the Copyright Royalty Board for webcasters falling into the categories of large, small, and those offering “bundled, syndicated, or subscription services”. The three initial signatories to the agreement are AccuRadio, Digitally Imported, and radioIO. The music service, Pandora, signed shortly thereafter. This agreement sets forth royalty rates that are discounted from those set by the CRB, in exchange for a share of revenue. This agreement has been touted by some as bringing an end to the webcaster royalty crisis. Click here for the full text of the agreement.

Other agreements were entered into with College Broadcasters, Inc., Sirius XM, the Corporation for Public Broadcasting, and National Religious Broadcasters (incorrectly listed in the register as Northwestern College). Click here for the full text of the agreements.

MCS Music America, Inc. et al v. Yahoo!, Inc., RealNetworks, Inc., and Microsoft Corporation
Case no: 3:09-cv-00597 in the United States District Court, Middle District of Tennessee
(This case can be tracked through the court’s PACER system)

Summary
In June of this year, MCS Music America, Inc., along with a list of other plaintiffs, filed suit against Yahoo, RealNetworks, and Microsoft. The suit alleges that the music services, Yahoo! Music Service , Rhapsody Music Service, and Zune Music Service permitted consumers to stream on-demand, and download for a limited time, specific recordings of musical compositions without the permission of the owners of the musical compositions. MCS Music America does not own any of the copyrights allegedly infringed in the case; rather it is the exclusive copyright and licensing administrator for the owners. The case is still in the pre-trial stage. This case may be particularly interesting because it is likely to draw attention to the licensing process with respect to mechanical licenses for limited downloads and on-demand streaming.

Editorial Note: It is worth noting that the mechanical licensing activities associated with the musical compositions in this case are not handled by the Harry Fox Agency; rather they are handled by MCS Music America. While pure speculation and opinion on the part of this author, this fact may be the single-most important fact that lead to the music being used without the appropriate licenses in place. While relatively efficient licensing processes are in place for music administered by the Harry Fox Agency, the same is often not true for other entities such as small music publishers that wish to license directly, or other administrative entities acting on their behalf. It is far more likely that the request for these licenses simply fell into a crack in the licensing process, rather than the use being the result of a deliberate intention to use the songs without having licenses in place. The licensing process in the U.S. is inefficient and cumbersome, and will inevitably, from time to time, result in mistakes.

Decision on whether or not ringtones are public performances
U.S. v. ASCAP
Civil Action No. 41-1395 (Case no: 1:41-cv-1395)
Related case established (Case no: 1:09-cv-07072-DLC)
(This case can be tracked through the court’s PACER system, and PDFs of some of the motions can be found on the Electronic Frontier Foundation website)

Summary:
As part of an open rate proceeding between ASCAP and AT&T, in the U.S. District Court for the Southern District of New York, the issue of whether or not ringtones are public performances, has been raised. According to the legal brief filed by ASCAP in the case, ASCAP has been issuing licenses for public performances via ringtones since 2001. A number of wireless carriers had been paying their ringtone public performance royalties to ASCAP without question. However, since the “download decision” made by the same court in April of 2007, in a rate proceeding with AOL, RealNetworks and Yahoo, determined that downloads are not public performances, several have questioned the need for these licenses. ASCAP’s position is that the “download decision” should not be applied to ringtones, that ringtones are more like streams than downloads, and that when a ringtone plays in public, it is a public performance. Needless to say, AT&T’s position is the opposite.

Jury decision on whether or not permanent downloads and ringtones should be treated as sales or licensing income when calculating artist royalties
F.B.T. Productions, LLC, Em2M, LLC v. Aftermath Records, Interscope Records, UMG Recording, Inc., Ary, Inc.
Case no: 2:07-cv-03314-PSG-MAN in the United States District Court, Central District of California; Court of appeals docket numbers 09-55817 and 09-56069.
(This case can be tracked through the court’s PACER system)

Summary:
I reported on this case in my Spring 2009 MEIEA eZine article. In March, a jury determined that the record companies acted correctly when they treated permanent downloads and ringtones as sales, rather than licensing income, when computing royalties. Since then, an appeal has been filed in the case with the U.S. Court of Appeals, Ninth Circuit. Given the appeal, this legal issue may not be put to bed yet.

RIAA v. Thomas-Rasset
Case no: 0:06-cv-01497 in the United States District Court, District of Minnesota
(This case can be tracked through the court’s PACER system)

Summary:
In June of 2009, the re-trial of RIAA v. Thomas-Rasset took place. The first trial began in 2003 and ended in late 2008, and was particularly noteworthy as it was the first music downloading case in the U.S. to go to trial. It also was the first case to address the argument that making tracks available to others online, by keeping them in a folder that is open for file sharing, is a form of infringement. Thomas-Rasset was found guilty in the first trial and ordered to pay $222,000 in damages. However, after reconsidering the appropriateness of the jury instructions regarding “making songs available”, the judge ordered a new trial. At the conclusion of the re-trial, the jury found Thomas-Rasset guilty again and awarded damages of $1.92 million. Thomas-Rasset is now seeking a third trial. In the motion filed, requesting a new trial, the issue of constitutionality regarding copyright infringement statutory damages is raised. The motion has yet to be ruled on by the court.

RIAA v. Tenenbaum
Case no: 3:09-cv-00597 in the United States District Court, Middle District of Tennessee
(This case can be tracked through the court’s PACER system)

Summary:
This case received a great deal of press, mainly due to the involvement of Harvard Law School professor Charles Nesson, who led Tenenbaum’s defense. This case was only the second music downloading case in the U.S. to go to trial. After a jury trial in July of 2009, Tenenbaum lost, and the jury ordered him to pay $675,000 in damages to the four record labels involved in the case. The maximum jurors could have awarded was $4.5 million. The next steps involve a possible proceeding to determine whether the size of the award violates the U.S. Constitution’s guarantee of due process of the law, and, potentially, bankruptcy proceedings initiated by Tenenbaum, who does not have the financial capacity to satisfy the judgment. Tenenbaum has started his own website called Joel Fights Back, which accepts donations towards “Joel’s Defense”.

You can find an interesting article which applies the three-part test established with respect to punitive damages and due process, in the Supreme Court decision of BMW of North America, Inc v. Gore, 517 U.S. 559 (1996), to copyright statutory damages to copyright statutory damages on The Federalist Society for Law and Public Policy Studies website.

LIVE365 v. Copyright Royalty Board (CRB)
Case no: 1:09-cv-01662-RBW in the United States District Court, District of Columbia (Washington, DC)
(This case can be tracked through the court’s PACER system)

Summary:
In this case, filed on August 31, 2009, Live365 is seeking declaratory and injunctive relief for a facial constitutional challenge to the formation of the CRB. A 2004 amendment to the U.S. Copyright Act authorizes the Librarian of Congress to appoint three full-time Copyright Royalty Judges, who are responsible for establishing royalty rates for numerous statutory licenses.

A precipitating event to this case was the concurring opinion written by Judge Brett Kavanaugh in the case of SoundExchange, Inc. v. Librarian of Congress, 571 F.3d 1220, 1226 (D.C. Cir. 2009), in which he raised questions regarding the constitutionality of the CRB. Live365 argues that the appointments of the CRB are unconstitutional under the Appointments Clause of the U.S. Constitution because they are not made by the executive branch of government, nor do they answer to, or are subject to oversight or removal by the executive branch. The CRB argues that the Librarian of Congress is the “head of a department” within the meaning of the Constitution, that the Library of Congress is an executive department, under control of the executive branch, and that it is therefore authorized to appoint inferior officers (the Copyright Royalty Judges). Live365 has also asked the court to issue a preliminary injunction ordering the CRB to stop all current proceedings. In late September, the court denied the request.

Eight Mile Style, LLC v. Apple, Inc. and Aftermath Records
Case no: 2:07-cv-13164-ADT-DAS in the United States District Court, Eastern District of Michigan.
(This case can be tracked through the court’s PACER system)

Summary:
In this case, filed in July 2007, the owner of a number of compositions written, in whole or in part by Eminem, alleges that Apple made recordings embodying such compositions for sale on iTunes without first obtaining the necessary mechanical licenses. As is the normal process in the U.S. with respect to iTunes, Aftermath Records, the owner of the sound recordings, provided Apple with the authorization to make the recordings available for sale, after it determined it had obtained the necessary mechanical reproduction rights to do so. In a Motion for Summary Judgment filed in May 2008, iTunes and Aftermath records argue, primarily, that the requisite authorization came in the form of a “controlled composition” clause in Eminem’s recording contract. Specifically, they argue, the clause states that compositions written in whole or in part by Eminem will be licensed to Aftermath Records and its distributors/licensees for use in phonorecords in exchange for a fixed royalty. The court denied the motion, without providing any written rationale. After a five day bench trial at the end of September, 2009, the parties reached a settlement. I will leave you to reach your own conclusion as to why a settlement would have been reached at such a late point in the proceedings.


Serona Elton is an Assistant Professor at the University of Miami’s Frost School of Music, in the Music Business and Entertainment Industry Program. Previously, she was the Vice-President, Mechanical Licensing and Repertoire Data Services for EMI Recorded Music, North America. She is also an attorney, licensed in New York and Florida.