Congress Should Pursue Royalty Reforms Urged in Copyright Office Report

One of the basic purposes of government is to protect private property rights. Article I, Section 8 of the U.S. Constitution recognizes copyright as property right and empowers Congress to secure royalties for copyright holders. But when it comes to copyright in sound recordings and music performances, current federal policy contains critical flaws. Reforms are needed to provide more adequate and equal protection for those rights.

A report issued by the Copyright Office on February 5 sets out laudable principles for moving copyright policy in a more free market-based and equitable direction. The report also recommends specific measures to improve copyright policy.

Congress should take the Copyright Office report’s principles and recommendations seriously. It should act to ensure public performance rights apply equally to all technology platforms, including terrestrial broadcast radio. Similarly, Congress should adopt a uniform, market-based rate standard for royalties that is applicable to all platforms. And it is noteworthy that the Copyright Office Report acknowledges that, in one way or the other, public performances of sound recordings made prior to 1972 should be subject to compensation so that the property rights of artists and creators of the pre-1972 recordings are secured.

As a general matter, current federal copyright law recognizes that public “performances” of musical sound recordings by commercial music service providers entitle the holder of a song’s copyright to royalty payments. But when the copyright’s holder and providers of music services cannot agree on royalties, federal law imposes a compulsory licensing and rate requirement. For most music services, the Copyright Royalty Board conducts ratemaking proceedings to establish sound recording copyright holder royalties. Copyright Judges set rates for traditional media like CDs and vinyl and for Internet-based digital music services. They also set rates for satellite providers, non-commercial broadcasting, and certain cable providers.

According to the Register of Copyrights, “[t]here is a widespread perception that our licensing system is broken.” This month, the Copyrights Office released its lengthy report, titled “Copyright and the Music Marketplace.” The report lays down several guiding principles for reform of federal copyright policy regarding sound recordings and music public performances. Among them:

• Government licensing processes should aspire to treat like uses of music alike.
• Government supervision should enable voluntary transactions while still supporting collective solutions.
• A single, market‐oriented ratesetting standard should apply to all music uses under statutory licenses.

Based on those and other principles, the report offers a series of preliminary recommendations for copyright policy change. Three report recommendations for advancing parity in licensing deserve particularly close attention from Congress.

First, Congress should: “Extend the public performance right in sound recordings to terrestrial radio broadcasts.” Existing law allows broadcasts of copyrighted music content without any need for copyright holders’ mutual agreement. But it is only equitable that terrestrial or over-the-air broadcast radio should have to respect performance rights of copyright holders. Current policy unfairly gives terrestrial broadcast radio a privileged position vis-à-vis commercial music services that use different transmission technologies and business models. This puts satellite and at a competitive disadvantage. A 2013 Green Paper by the Department of Commerce made these same points. It is now time for Congress to act.

Second, Congress should: “Adopt a uniform market‐based ratesetting standard for all government rates.” The current federal policy of applying varying rate standards dependent on the underlying service technology is nonsensical and should be discarded. And in achieving uniformity in rate standards, Congress should prefer a standard that at least seeks to approximate free market outcomes rather than perform protectionist functions.

That is, Congress should only apply a “willing buyer/willing seller” standard for “reasonable” rates, definable as payments that “most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” This standard currently applies to non-interactive Internet-based digital music services such as Pandora, Spotify, and iHeartRadio – but not to cable and satellite video service providers. Congress should jettison the so-called 801(b) rate standard, which among things is calculated to “minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.” As I have written previously, Section 801(b)’s “anti-disruption proviso epitomizes what is wrong with the existing regulatory regime controlling music copyright royalties.”

Finally, it is useful that the Copyright Office Report acknowledges that the performance of pre-1972 sound recordings should be subject to compensation. While the Copyright Act of 1976 largely preempted state copyright law, Section 301(c) left intact state jurisdiction over rights in sound recordings fixed before February 15, 1972. The issue of state copyright protection in pre-72 sound recordings has been the subject of recent litigation involving digital music services such as Sirius XM. To date, courts that squarely faced the issue have recognized the existence of public performance rights under state law causes of action for copyright holders in pre-72 sound recordings. These recent cases are significant developments because the courts recognize that artists and creators of pre-1972 recordings have property interests that may not be misappropriated without compensation.

The report considers full federalization of the pre-1972 recordings – that is, federal field preemption of state law – one approach to achieving the desired result of ensuring compensation for performance of such recordings. Another possible approach is embodied in the RESPECT ACT. This previously introduced legislation does not preempt the field of state law protection in pre-1972 sound recordings as such. Instead, it provides that digital music services providers – such as Internet radio, cable, or satellite – must pay royalties for public performances of pre-1972 sound recordings in the same manner as they now do for post-1972 sound recordings. The RESPECT ACT would make such payment a safe harbor from state copyright infringement claims.

It may be that the federalization approach would be an acceptable means of achieving proper compensation for use of the pre-1972 recordings. And if so, there may be other changes in the Copyright Act – such as improving the efficacy of the DMCA procedures – that should accompany such federalization. In any event, it is important that the property rights in pre-1972 sound recordings be secured.  

The Copyright Office report contains many other reform proposals worth considering. But the report recommendations for advancing parity in licensing should be critical components of any congressional efforts to reform copyright policy for sound recordings and music performances. Congress should act to make copyright policy more amenable to free market transactions and to equitable treatment of music copyright holders and music service providers alike.