Background

The Digital Performance Right in Sound Recordings Act of 1995 amended copyright law to provide a new performance right specifically for when songs are transmitted digitally. The new right was provided in section 106 of the Copyright Act and limitations were codified in section 114.

Different Services Different Licenses to transmit music

Section 114 adopts a three-pronged approach. First, it completely exempts over-the-air radio transmissions from any license obligations, effectively “grandfathering-in” radio broadcasters since the performance right in sound recordings themselves did not exist until well after radio broadcasts. Second, Internet radio, and satellite radio are subjected to a compulsory license. A compulsory license provides a license to use a work without the copyright owner’s permission but is subject to payment of a set compensation. Although a compulsory license acts as a limitation on a copyright owner’s right, copyright law uses it in many instances where business models need to license large amounts of copyrighted works but licensing from individual owners would be near impossible, or in cases where one of the parties to the transaction has disproportionate market power. The section 114 compulsory license extends to radio-style digital transmissions from satellite radio such as XM and Sirius satellite radio and Internet radio stations such as Live365 and Yahoo! Music. Third, interactive services that give the listener choice in the music that is delivered, like Last.fm are denied the benefit of the compulsory license and are required to seek permission directly from the copyright owner in order to transmit their music.

Conditions for getting a license

All services that are eligible for the compulsory license must meet several conditions. They have to display information identifying the artist, title, lyricist, and composer of the track being transmitted. They must also abide by what is called the “sound recording performance complement” which restricts the number of songs that can be played from the same album or same artists within a three-hour period. This condition is apparently designed to prevent consumers from recording their favorite artists or albums thereby displacing CD sales. Services are prohibited from evading this condition by causing channels to switch automatically. In addition, services that started after 1998, chiefly Internet radio, must not induce or encourage copying and must use technology to prevent copying, called Technological Protection Measures (TPMs), also known as Digital Rights Management (DRM) if the technology permits using them.

Rate Setting

If music services and rights owners fail to agree upon a license fee, section 114 sets up different standards for setting fees for pre and post 1998 services. The body responsible for setting these fees is called the Copyright Royalty Board (CRB). The CRB consists of three administrative judges who determine rates and terms for various compulsory licenses under the copyright act and receive and distribute royalties collected by the Copyright Office. For pre-1998 services, such as satellite radio and Music Choice, the CRB is required to set a fee that ensures the most creative works are available to the public. The CRB also must consider the relative roles of the service transmitting the music and the record label in making the work available and to afford both a fair return. By contrast, for the post-1998 services, the CRB is directed to consider whether the service would diminish record sales and other sources of revenue for copyright owners and also the relative contributions of the service and the label in making the work available. The standard for post-1998 services is clearly titled in favor of the labels.

Section 114 requires copyright owners to “designate common agents” to distribute the statutory fee. SoundExchange and Royalty Logic have emerged as the designated agents. The fees are distributed evenly among performing artists and record labels.