New Jersey Law Journal

July 22, 2003

Copyright 2003 ALM Properties, Inc. All Rights Reserved.

HEADLINE: Internet Broadcasts of Sound Recordings

Music on the 'Net is subject to more rigorous licensure requirements

BYLINE: By Jonathan Bick; Bick, counsel to Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone of Roseland and an adjunct professor of Internet law at Rutgers Law School-Newark, is the author of 101 Things You Need To Know About Internet Law [Random House 2000].


Internet Law

The U.S. Copyright Office's novel application of intellectual property law to Internet music broadcasters has been upheld by at least one federal court. If the content of an Internet broadcast includes copyrighted material, the Internet broadcaster must have a license to broadcast that material via the Internet.

In Bonneville International Corp. v. Peters, 153 F. Supp. 2d 763 [E.D. Pa. Aug. 1, 2001], the district court upheld the Copyright Office's decision that conventional radio stations simulcasting their broadcasts over the Internet must license sound recording performance rights, unlike any traditional broadcaster. This is a clear case of a traditional intellectual property asset requiring different treatment when transformed into an Internet intellectual-property asset.

This means that Internet broadcasters are subject to more licensing laws than conventional broadcasters and that, consequently, certain Internet intellectual property will be treated differently from traditional intellectual property - at least while the Bonneville case works its way through the appellate courts.

Bundles of Rights

Recorded music consists of two separate copyrightable works. The first is a series of notes and lyrics that a composer creates and is called a "musical work." The second, called the "sound recording," is the actual sound of a performance of a musical work.

This distinction between these two types of works has special significance with respect to copyright law, particularly when considering the Internet. Copyright owners of musical works typically hold a bundle of five exclusive rights including, the rights to reproduce, distribute, perform publicly, create derivatives, and display their work. However, these rights are limited for holders of copyrights in sound recordings. Characteristically, when a song is broadcast, the holder of the musical-work copyright receives a royalty payment from the broadcaster, while the holder of the sound-recording copyright receives nothing.

Both types of intellectual property rights must be considered with respect to Internet broadcasts of sound recordings. In contrast, a conventional radio broadcaster need only pay a license fee for the right to "perform" the compositions that it is broadcasting. This fee goes to those who own the copyright of the song that is being broadcast, rather than to those who own the sound recording copyrights.

Digital Data

Among the most fundamental characteristics of the Internet is its use to transfer digital information. In fact, the Internet is little more than the use of a common protocol to transfer digital data. So it is not surprising that in the Bonneville case the court upheld the ruling of the U.S. Copyright Office that conventional radio stations that use the Internet to transfer digital data [i.e. music] must license sound recording performance rights, too.

In this instance, a public policy argument can be made in support of treating Internet and traditional intellectual property differently. The establishment of a sound recording performance right for a "digital audio transmission" was necessitated by the fact that digital transmissions are more susceptible to high-quality and serial copying that supplants legal sales of sound recordings. Thus, the additional income from the creation of performance rights could help offset the projected loss from illegal digital copying.

In Bonneville, the court ruled that radio stations engaged in "streaming broadcasts" were not exempt nonsubscription broadcast transmissions. Streaming is a process in which a radio station takes its over-the-air signal and simultaneously broadcasts it on a Web site, allowing Internet users anywhere in the world to tune in. Streaming became an important Internet application when it was found that more than 7 percent of the radio audience regularly listens on the Internet.

The result of the Bonneville case was that the radio stations had to pay a public performance royalty when they transform a traditional intellectual property asset into an Internet intellectual property asset. Of equal importance, the Bonneville case suggests that Internet intellectual property asset may be lawfully treated differently from traditional intellectual property, even if the assets are physically identical [i.e. both digital content].

Statutory Framework

Copyright law has long recognized an owner's intellectual property right to publicly performed music, however only recently have the Copyright statutes embarked on the protection of sound recordings. Congress did not address this anomaly until the 1990s, when the Internet became a practical distribution medium and the digital transmission of music became prevalent.

Under the Sound Recording Act of 1971, Congress extended limited federal copyright protection to sound recordings. This limited protection did not include a public performance right. The Copyright Act of 1976 eliminated expanded protections for owners of sound recordings but added numerous explicit exemptions, including licensed broadcast transmissions.

In 1995, when the Digital Performance Right in Sound Recordings Act [DPSRA] was enacted, public performances of sound recordings were afforded copyright protection.

In 1998, Congress further amended the Copyright Act with the passing of the Digital Millennium Copyright Act [DMCA], which was designed to provide a variety of provisions aimed at limiting digital piracy. The DMCA also amended §[114[d][2] of the Copyright Act to extend the statutory license umbrella for subscription broadcasts to cover certain eligible nonsubscription transmissions. Most importantly, the DMCA does not allow Internet radio broadcasters to qualify for the nonsubscription broadcast transmission exemption.

Both the DPSRA and DMCA granted record companies a limited right over the public performance of their sound recordings, thus allowing them to collect royalties when their sound recordings are transmitted through digital media.

Both the DPSRA and DMCA were unequivocally intended to encourage the development of new Internet distribution methods and thereby smooth the progress of the delivery of music recordings to consumers. Congress also sought to ensure that copyright owners would be able to receive reasonable recompense as new Internet technologies emerged.

Consequently, the amendments established a compulsory licensing regime for the transmission of digital sound recordings on the Internet. This compulsory license regime enables eligible Internet broadcasters to automatically obtain a license to transmit sound recordings, easing their burden of having to locate and negotiate individual license agreements with each record company that holds the sound recording copyright to each song transmitted.

Chevron Abstention

Although courts have the final word on interpretations of law, they regularly defer to an administrative agency's interpretation of its enabling legislation, particularly when Congress has sanctioned a particular governmental organization, either implicitly or explicitly, to interpret the laws the agency enforces.

A court reviewing an agency's construction of a statute that it administers must apply the following two-prong analysis. From Chevron v. Natural Res. Def. Council, 467 U.S. 837, 842 [1984], it is understood that a court must first ascertain whether "Congress has directly spoken to the precise question at issue." Clear Congressional intent will end a court's evaluation.

However, the Chevron doctrine also means that if a statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. Under 5 U.S.C. 706 [1994], the final authority on a statute's interpretation and its applicability, whether constitutional or statutory, remains with the courts.

In the Bonneville case, the district court held that the Copyright Office can establish the rates and terms for a §[114 license because Congress gave it interpretive authority over this section of the Copyright Act. The court further held that Congress intended to permit only local transmission over-the-air radio broadcasts, and not Internet radio rebroadcast, under §[114.

The court found that, consistent with Miss Am. Org. v. Mattel, Inc., 945 F. 2d 536, 540 [2d Cir. 1991], the Copyright Office is allowed to complete its action where the function of the agency and the particular decision sought to be reviewed involves the exercise of discretionary powers granted the agency by Congress, or requires application of special expertise.

Accordingly, the district court summarily adjudicated the Bonneville case in favor of the defendants, holding that the Copyright Office acted properly when it construed the meaning of "broadcast transmission" to include only over-the-air transmissions made by an FCC-licensed broadcaster did have the statutory authority to promulgate such a rule. The court ruled that the Copyright Office's rulemaking was reasonable and that the court would have independently reached the same conclusion.

The Copyright Office had concluded from the statutory language that Congress did not intend the term non-subscription broadcast transmission to include radio rebroadcasts. The court's findings were consistent with Copyright Offices and held that a facial appraisal of the statute, as well as the appropriate legislative history demonstrated that it was improbable that Congress even considered the rebroadcast of radio music, let alone exempted such activities from the public performance rights section.

Additionally, the court agreed with the Copyright Office's position that defining "nonsubscription broadcast transmission" to include streaming of traditional broadcasting would conflict with provisions of the DPSRA and the DMCA. The court affirmed the Copyright Office's finding that a definition of "non-subscription broadcast transmission" that includes streaming of AM/FM broadcasting is inconsistent with the Copyright Act. In particular, the court pointed to §[112 of the Act.

Lastly, public policy considerations declared by the Copyright Office reinforce the court's finding that the §[114[d][1][A] exemption is not applicable to broadcasters who stream their transmissions over the Internet.

It is not clear whether the Copyright Office's administrative "final rule" is binding under the Chevron doctrine. The court in the Bonneville case stated that it would have come to the same conclusion as the Copyright Office's administrative "final rule," it is still important to recognize the implications of this decision. If courts continue to give Chevron deference to the Copyright Office with respect to Internet-related intellectual property decisions, the court will have granted the Copyright Office the authority to treat Internet intellectual property differently from traditional intellectual property.

Clearly, the Copyright Office has not been delegated the authority to interpret §[114 of the Copyright Act as it did. While several considerations supported the reviewing court's deference to the Copyright Office's interpretation of §[114, as in Bonneville, no evidence exists that Congress intended that the Copyright Office's interpretations bind the courts with respect to Internet-related matters.