Copyright Bill Would End Unequal, Inequitable Treatment of Pre-72 Sound Recordings

Current federal copyright law fails to provide important copyright protections to music artists and other copyright holders in sound recordings made before 1972. As a result, copyright holders do not enjoy the same right under federal law to receive royalties for public performances of pre-72 sound recordings that others enjoy for later recordings. A new bill in Congress offers a workable, straightforward, and long overdue solution to this glaring problem.

On July 19, Representatives Darrell Issa and Jerrold Nadler introduced HR 3301, the “Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society Act” – or “CLASSICS Act.” If adopted, digital audio transmissions of pre-72 sound recording would no longer be excluded from federal protections for public performances of copyrighted sound recordings. HR 3301 would also provide a streamlined way for resolving pre-existing state law claims for digital audio transmissions of pre-72 sound recordings. The CLASSICS Act strongly merits consideration without delay by the 115th Congress.

As Free State Foundation President Randolph J. May and I described in our book, The Constitutional Foundations of Intellectual Property: A Property Rights Perspective (2015), copyright is a unique kind of private property right, rooted in an author’s creative labor. The U.S. Constitution’s Article I, Section 8, IP Clause authorizes Congress to protect an author’s exclusive right to the proceeds of his or her work. Federal copyright law establishes baseline protections for copyright holders – including exclusive rights to proceeds from public performances of sound recordings.

Without any apparent explanation, the Copyright Act of 1976 excluded federal protection for the owners of copyrighted sound recordings made before February 15, 1972. Digital music services such as Sirius XM and Pandora have publicly performed pre-72 sound recordings via digital audio transmissions without paying royalties to copyright holders in the manner they routinely pay for post-72 sound recordings. Although the 1976 Act largely preempted state copyright laws, Section 301(c) left intact state jurisdiction over rights in sound recordings fixed before 1972. This state of affairs has resulted in a handful of lawsuits against digital music services based on state copyright law. Courts have largely – but not entirely – recognized that owners of pre-1972 recordings have property interests under state law and that those interests may not be misappropriated without compensation.

In a 2015 report, the U.S. Copyright Office reiterated its view that “pre-1972 recordings should be brought under the protection of federal copyright law.” According to the Copyright Office, federal recognition of public performance copyright protections in pre-72 sound recordings “would serve the interests of licensing parity by eliminating… market distortion” and also “allow for a federal compensation mechanism for the artists responsible for pre-1972 works.”

The CLASSICS Act, HR 3301, is perhaps the most promising legislative proposal to date for extending federal copyright protections to public performances of pre-72 sound recordings. Passage of HR 3301 would bring needed parity to federal law. HR 3301 would end free-riding commercial usage of valuable copyrighted sound recordings. Certainly, this would be in step with Congress’s constitutional duty to secure copyright holders’ exclusive rights to the proceeds of their intellectual property. Going forward, copyright holders would receive royalties based on rates established by the Copyright Royalty Board pursuant to its “willing buyer/willing seller” standard that seeks to approximate market prices for public performances of sound recordings via digital audio transmissions.  

Further, the CLASSICS Act would clear up existing uncertainties tied to state copyright laws. If adopted, the HR 3301 would preempt state law claims based on public performances of pre-72 sound recordings that meet the requirements of federal law. The bill also provides a streamlined option for settling prior lawsuits based on state copyright lawsuits claims. Within nine months after the HR 3301’s effective date, if digital music providers pay royalties for all public performances of pre-72 sound recordings taking place during the last three years, all state law claims against such providers would be federally preempted.

Importantly, a press release by the CLASSIC Act’s sponsors states that HR 3301 has a broad base of support from a diverse array of participants in the music marketplace. Listed supporters of the bill include the Recording Industry Association of America (RIAA), Pandora, musicFIRST, the Internet Association, SoundExchange, and the American Federation of Musicians. This cross-section of support bodes well for the bill’s prospects in this Congress.

The sponsors of the CLASSIC Act should be commended for introducing the bill. HR 3301would at long last recognize the rights of copyright holders in pre-1972 sound recordings, and justly ensure they receive compensation for commercial uses of their intellectual property. Congress should give HR 3301 prompt attention.

State Attorney Generals Warn About Piracy Sites

The Digital Citizens Alliance (DCA) has launched a campaign with the help of 15 state Attorney Generals to warn consumers about the risk of malware on piracy websites. According to a Variety article, many websites bait consumers with stolen videos or music and then steal the consumers’ identifications and financial information.

The state Attorney Generals participating in the campaign are:

IN: Curtis Hill

AZ: Marc Brnovich

KY: Andy Bashear

DC: Karl Racine

KS: Derek Schmidt

MT: Tim Fox

OR: Ellen Rosenblum

CT: George Jepsen

SD: Marty Jackley

LA: Jeff Landry

ND: Wayne Stenehjem

WI: Brad Schimel

ID: Lawrence Wasden

NC: Josh Stein

HI: Doug Chin

A 2016 study by RiskIQ found that one out of three piracy websites exposes consumers to dangerous malware. Moreover, 45% of malware from piracy websites is delivered through so-called “drive-by downloads,” meaning malware invisibly downloads to the consumer’s computer without requiring the consumer to click on a link. RiskIQ estimated that piracy websites were making about $70 million a year from allowing malware to be placed on their sites. When consumers expose themselves to this type of vulnerability, hackers are able to steal personal information, steal bank and credit card data, and even lock a consumer’s computer and demand a ransom fee.

It is important that DCA and a group of state Attorney Generals are now speaking out to warn consumers of this dangerous criminal activity. The best way to reduce piracy is to stop the cash flow. Educating consumers about the risks they assume should make them think twice before visiting a piracy website, ultimately slowing the growth of online piracy.

Online piracy is a major problem in the United States and abroad, but voluntary campaigns can help minimize piracy by informing consumers about the risks to them and the harm suffered by artists and entrepreneurs from theft of intellectual property.

Maryland’s Fiscal Health Is Poor Even as Business Climate Improves

On July 11, 2017, the Mercatus Center at George Mason University released its 2017 edition of “Ranking the States by Fiscal Condition,” which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. And CNBC recently released “America’s Top States for Business 2017,” which ranks each state by the attractiveness of its business climate.

Despite Governor Larry Hogan’s thus far commendable efforts to reform Maryland’s business climate, the state nevertheless ranks 46^th in overall fiscal solvency in the new Mercatus Center study, falling five spots from 41^st in 2016. The data used in the Mercatus study comes from fiscal year 2015, which only covers the first six months of Governor Hogan’s administration. So his reform efforts will not be recognized in this study. But it is still important to see how Maryland ranks relative to other states.

In the Mercatus study, fiscal solvency is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 46^th and falling three spots from 43^rd in 2016.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 101% of expenses. This ranks Maryland 39^th in the country moving up seven spots from 46^th in 2016.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.83 and Maryland ranks 44^th in long-run solvency, moving down one spot from 43^rd in 2016.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 16^th for the second year in a row.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 14^th, moving up four spots from 18^th in 2016.

Maryland’s unfunded liabilities may be small relative to other states, but they are large relative to Maryland’s current assets. Maryland has a funded ratio of 74%. This means the value of the state’s assets are 74% of the value of the state’s pension obligations. Although 74% is consistent with the national average, Maryland has over $20 billion in unfunded liabilities.

Despite Maryland’s poor ranking in the new Mercatus study, Governor Larry Hogan has done a commendable job starting to transform Maryland’s business climate. As Free State Foundation President Randolph May stated in a January 2017 Perspectives from FSF Scholars, Governor Hogan’s Regulatory Reform Commission has identified specific areas where Maryland can reduce regulatory barriers. Also, in May 2016, Governor Hogan reduced or eliminated over 155 fees, claiming to save businesses and taxpayers over $60 million over the next five years.

These efforts have helped propel Maryland upward in CNBC’s new ranking “America’s Top States for Business 2017.” Since Governor Hogan took office in January 2015, Maryland has moved up eleven spots to 25^th in CNBC’s 2017 ranking. Notably, Maryland currently ranks 4^th in technology and innovation, 7^th in overall economy, 11^th in workforce, and 15^th in access to capital.

Despite the positive direction of Maryland’s business climate, the Mercatus study shows how the decisions of past administrations, along with past legislatures, have created long-term debt and left Maryland with one of the worst fiscal situations in the country. In a couple of years when the data used in the Mercatus study takes into account the reforms made by the Hogan administration, it will be interesting to see whether the improvements to Maryland’s business climate have positively impacted Maryland’s fiscal health.

The most effective plan for fixing Maryland’s fiscal health should go hand-in-hand with Governor Hogan’s reformist goals when he first took office. The Maryland General Assembly should work with Governor Hogan to reduce tax and regulatory burdens. This would enable Maryland to attract economic activity that has migrated over state lines in past years. Creating an economy more conducive to “permissionless innovation” will incentivize entrepreneurs to open up shop in Maryland. This will expand Maryland’s tax base, increase tax revenue, and improve Maryland’s fiscal health by reducing the amount of unfunded liabilities. Reducing the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout the state of Maryland.

The Maryland General Assembly should support Governor Hogan’s efforts to reform Maryland’s tax and regulatory environment and attract more businesses into the state.

FSF Files Comments to Restore Internet Freedom

Yesterday, the Free State Foundation filed comments regarding the FCC's proposal to restore Internet freedom and remove the Title II classification of broadband Internet access services. At 90 pages, these are the longest comments ever filed by FSF. If you do not have time to read every word, please refer to the introduction and summary on the first nine pages. Thank you!

T-Mobile's Voluntary Payments Speed Wireless Broadband Deployment

Broadcasting & Cable's John Eggerton reports that T-Mobile has made a voluntary commitment to pay for affected low-power stations to move to temporary channels in order to clear broadcast spectrum as quickly and equitably as possible following the incentive auction. While it is true that providing compensation to the low-power stations will help expedite clearing the spectrum that T-Mobile secured in the 600 MHz auction, it is also true that T-Mobile is under no obligation to make the payments to which it has volunteered. Instead, it could look to Congress or elsewhere for the additional relocation funds.

T-Mobile's voluntary commitment should help put it in a position to start expanding its advanced wireless network sooner than otherwise might be possible. That's not just good for T-Mobile, it's good for all Americans as the demand for high-speed wireless services increases exponentially.

And note that T-Mobile's new commitment is on top of the one made to cover certain costs incurred by public TV stations in relocating as a result of the 600 MHz auction. I wrote about that commitment in this post, "T-Mobile-PBS Agreement Is a Win-Win."

Strengthen NAFTA's IP Chapter

President Trump has been critical of the North American Free Trade Agreement (NAFTA), a trilateral free trade agreement involving the United States, Canada, and Mexico, stating that he would withdraw the U.S. from the 23-year-old agreement. He even drafted an executive order that would have removed the United States, but he ultimately decided not to issue it.

Still, President Trump apparently remains concerned about NAFTA, and this is a concern to hundreds of millions of North American consumers and entrepreneurs who benefit from the economic prosperity that NAFTA has fostered. Instead of contemplating withdrawing the U.S. from NAFTA, President Trump should focus his attention on modernizing NAFTA. In this regard, he should focus special attention on strengthening NAFTA’s IP Chapter in order to better protect creators and inventors throughout North America.

Withdrawal from NAFTA would have detrimental economic effects on the North American economy. The daily volume of economic trade among the three member countries is over $3.5 billion. From the United States’ perspective, about $1.3 trillion in annual economic activity crosses U.S. borders with Canada and Mexico. There are also 14 million U.S. jobs that directly depend on trade with Canada and Mexico. In other words, hundreds of millions of consumers and entrepreneurs throughout North America value the economic benefits of NAFTA, including access to inexpensive goods and services, low barriers to entry for entrepreneurs, and of course, the enjoyment of artistic creations that protections of intellectual property rights enable.

Modernizing NAFTA by strengthening IP rights protections, especially to take account of the digital economy that was almost non-existent when NAFTA was negotiated, would be helpful. In a recent blog post, John Murphy, the U.S. Chamber of Commerce’s Senior Vice President for International Policy, discusses some key areas where NAFTA could be modernized to benefit consumers and entrepreneurs in all three member countries. In recent comments submitted to the Office of the U.S. Trade Representative and the Trade Policy Staff Committee, Mr. Murphy specifically addresses aspects of NAFTA’s IP Chapter that could be better enforced and some that should be updated.

Some parts of Canadian and Mexican IP laws, along with enforcement practices, do not protect U.S. interests. For example, the position of both Canada and Mexico with regard to the transshipment of counterfeit and pirated goods into the United States is too relaxed. This places a high burden on U.S. border officials to police illicit trade. Pirated and counterfeit digital goods have become increasingly available since NAFTA was implemented in 1994, just before the digital economy started to grow. The distribution of pirated and counterfeit goods was listed as a key area of weakness for both Canada and Mexico in the Global IP Center’s (GIPC) 2017 International IP Index.

Also, with respect to pharmaceutical patents, Mexico has not fully implemented the regulatory data protection provisions of NAFTA and neither Mexico nor Canada meets the standard in U.S. law of twelve years of regulatory data protection for biologic products. The U.S. Chamber of Commerce suggests that both countries provide at least five years of patent term restoration that grants full rights to compensate for the patent life lost to patent office and regulatory approval delays. Also, the judicial systems in both countries should provide effective enforcement of patents and compensation for patent infringement. Needless to say, Canada and Mexico scored relatively low on the patents category of GIPC’s International IP Index.

The U.S. Chamber of Commerce listed a number of recommendations that should be part of an updated IP Chapter in NAFTA:

• Commitment to full national treatment without carve outs.

• Re-commitment to strong base terms of protection for patents, copyrights and related rights, trademarks, and designs, and establishment of a statutory commitment to protect trade secrets.

• Exclusive rights for all forms of IP regardless of business models.

• Guarantee of technology-neutral patent eligibility for all industry sectors strictly based on the international norm of novelty, usefulness, and non-obviousness.

• Clear and carefully-defined rules for exceptions to rights across all forms of IP.

• Rule of law mechanisms that enable IP owners to maintain, commercialize, and defend their rights, including, for example:

o   Prohibition of forced transfer of IP rights and government interference in commercial technology agreements;

o   Strong legal protections against circumvention of technological protection measures for the digital marketplace, with appropriate exceptions;

o   Patent linkage rules that enable pharmaceutical innovators to resolve patent disputes before potentially infringing products enter the market; and,

o   Patent term extension and restoration to address bureaucratic delays.

• Statutory protection for proprietary information, including trade secrets as well as regulatory test data submitted to governments, and establishment of criminal penalties for trade secrets theft, including by means of a computer system.

• Deterrent-level civil and criminal remedies in law, backed up by effective enforcement efforts, to combat trade in counterfeit goods, among other goals, and halt damage to iconic U.S. brands and the jobs that depend upon them.

• Appropriate and effective safe harbor mechanisms for intermediary liability.

• Ensure NAFTA partners implement relevant international IP agreements in domestic law.

• Participation in partnership with the United States in a forward-looking norm-setting agenda through multilateral treaties and trade agreements to ensure that U.S., Canadian, and Mexican IP interests are promoted around the world.

The U.S. Chamber’s comments regarding modernizing NAFTA’s IP Chapter conclude this way:

Ensuring full implementation of existing NAFTA rules and upgrading Canadian and Mexican IP laws would give American creators and innovators an expanded regional platform to launch new products and services with the assurance that their IP is protected. In turn, Canada and Mexico would be better able to enjoy the benefits of the research and development investments and creative work taking place in their own markets, which due to a weak IP environment too often are lost to foreign competitors. Likewise, modernizing NAFTA’s IP provisions would strengthen the digital economy throughout North American by powering the knowledge sector, which is critical to driving digital growth.

Stronger IP rights protections will incentivize more innovation and investment. This will benefit consumers, entrepreneurs, artists, and inventors in all three member countries. With $1.3 trillion in annual economy activity and 14 million U.S. jobs on the line, President Trump should be focusing not on withdrawing from NAFTA but rather on updating it in a way that strengthens the IP Chapter.

Jerry Ellig named FCC Chief Economist

Today, FCC Chairman Ajit Pai announced the appointment of Jerry Ellig as FCC chief economist. Dr. Ellig currently serves as a senior research fellow at the Mercatus Center at George Mason University (GMU). Dr. Ellig was a professor and colleague of mine while I was a student at GMU and a graduate fellow at the Mercatus Center. Together, we coauthored a paper entitled "Preventing a Regulatory Train Wreck: Mandating Regulation and the Cautionary Tale of Positive Train Control."

Dr. Ellig is an expert on cost-benefit and regulatory impact analyses. His expertise will go a long way towards achieving Chairman Pai's goal of implementing stringent economic analyses into the FCC's rulemaking proceedings.

Great choice by Chairman Pai and congratulations to Dr. Jerry Ellig!

U.S. Should Continue Leading in Promoting Global Broadband Access

Cisco recently released its Visual Networking Index: Forecast and Methodology, 2016-2021, not to be confused with Cisco’s mobile forecast, which I discussed in a February 2017 blog. This valuable index presents global and regional trends regarding Internet access, usage, and network speeds. The most interesting finding might be that 58% of the world’s population will be using the Internet by 2021.

As a global leader in broadband investment, innovation, access, and adoption, the United States should adopt policies that will promote growth in broadband deployment, access, and devices. Not only will this create jobs and economic activity within the United States, but it could encourage similar policies in other countries.

Another interesting finding in the new report is the proliferation of smartphone use. Consumers are beginning to use smartphones as their primary device. The report finds that global smartphone traffic will exceed personal computer (PC) traffic by 2021. In 2016, PCs accounted for 46% of total Internet traffic, but by 2021 PCs will account for only 25% of the total traffic. Smartphones will account for 33% of total Internet traffic in 2021, up from 13% in 2016.

Here are some more of the key findings regarding global Internet access, usage, and network speeds:

• By 2021, 58% of the population will be using the Internet, up from 44% in 2016.

• By 2021, 80% of all Internet traffic will be video, up from 67% in 2016.

• By 2021, there will be 3.5 networked devices and connections per person, up from 2.3 in 2016.

• By 2021, there will be 61 GB of Internet traffic per month, per user, up from 24 GB in 2016.

• By 2021, the average broadband speed will be 53 Mbps, up from 27.5 Mbps in 2016.

• By 2021, the average mobile speed will be 20 Mbps, up from 6.8 Mbps in 2016.

Here are some of the same key findings with respect to North America:

• By 2021, 89% of the population will be using the Internet, up from 88% in 2016.

• By 2021, 78% of all Internet traffic will be video, up from 74% in 2016.

• By 2021, there will be 12.9 networked devices and connections per person, up from 7.7 in 2016.

• By 2021, there will be 181 GB of Internet traffic per month, per user, up from 68 GB in 2016.

• By 2021, the average broadband speed will be 74.2 Mbps, up from 32.9 Mbps in 2016.

• By 2021, the average mobile speed will be 25 Mbps, up from 13.7 Mbps in 2016.

As you can see, North America is well ahead of the rest of the world in terms of Internet usage and network speeds, with the United States the leader of North America. Until February 2015, U.S. consumers benefited from a relatively light-touch regulatory regime that did not discourage investment and innovation. The regulatory uncertainty and burdensome costs imposed by the FCC’s 2015 Open Internet Order have slowed investment by about $5.6 billion. In order to continue a rapid increase in output of investment in broadband networks and devices, the FCC should reclassify broadband as a Title I “information service” and implement a light-touch regulatory framework that promotes competition and protects consumers from potential harms.

Moreover, as Free State Foundation Senior Fellow Ted Bolema and I suggested in a new Perspectives from FSF Scholars, there are steps that Congress, the FCC, and state and local governments should take to promote private broadband investment and increase access in underserved areas. So, although the United States, for now, is a world leader in broadband investment, innovation, access, and adoption, encouraging additional network investment and innovation within the U.S. could incentivize foreign governments to embrace similar policies.

By 2021, more than half of the world’s population will be using the Internet. If the U.S. adopts policies that promote broadband investment and access within the United States, the positive impact on job creation and economic activity may encourage foreign governments to adopt similar polices. In other words, the U.S. leadership through example could help increase global Internet access, pushing adoption well beyond 58% of the world’s population.

Again, Cisco’s index is valuable in providing policymakers with a forecast of the exponential Internet growth just over the horizon. 

T-Mobile-PBS Agreement Is a Win-Win

The newly announced agreement between PBS and T-Mobile is worth taking note of because it will speed the deployment of new advanced wireless networks while, at the same time, ensuring that certain public television stations can maintain their broadcasts for public television views. T-Mobile has agreed to cover the costs for low-power public TV translator stations that are required to be relocated in connection with the FCC's recent spectrum auctions. The sooner the frequencies can be cleared, the sooner T-Mobile will be in a position to expand its wireless network facilities.

T-Mobile's agreement to cover the costs of the relocation of the public TV facilities looks to be a win-win situation for all.

Here is PBS's news release on the agreement.

Washington, D.C.— June 29, 2017 — PBS, in coordination with America’s Public Television Stations (APTS), today announced an agreement with T-Mobile to deliver on the promise of universal service of both broadcast and wireless service to millions of Americans living in rural areas. T-Mobile has committed to covering the costs for local public television low-power facilities that are required to relocate to new broadcasting frequencies following the government’s recent spectrum incentive auction. The project will also result in increased wireless choice in these underserved areas as T-Mobile leverages the new spectrum that the company acquired in the auction to expand its wireless network.

“Public broadcasting has been one of America’s greatest and most enduring public-private partnerships,” said PBS President and CEO Paula Kerger. “We are thrilled that T-Mobile sees the value that public broadcasting brings to the American people and is helping to ensure that everyone—regardless of income or zip code—continues to have access to PBS, including vital emergency alerts and programs that help prepare children for success in school.”

“As the post-auction repacking process moves forward, local public television stations are committed to ensuring that all Americans continue to have free over-the-air access to the local content and services on which our viewers and their communities depend,” said APTS President and CEO Patrick Butler. “America’s Public Television Stations are very pleased that this initiative with T-Mobile will help address one of the most significant repacking challenges that local public television stations face by providing needed funding to relocate translator facilities that enable us to provide essential services in education, public safety and civic leadership to the most rural and remote parts of the country.”

The federal legislation establishing the spectrum incentive auction did not provide funding for low-power broadcast facilities (also called translators), displaced by the auction, to move to new frequencies. This critical local broadcast infrastructure is essential for extending the reach of TV broadcast signals deep into rural America. As a result, as many as 38 million Americans in rural communities nationwide are at risk of losing free over-the-air access to public television’s essential education, public safety and civic leadership programming and services.

With T-Mobile helping fund the move to operate on new frequencies, millions of families in rural America will now continue to receive uninterrupted access to trusted and beloved PBS programming—from “Daniel Tiger’s Neighborhood” to “Masterpiece,” from “Nature” to “PBS NewsHour.” They will also continue to benefit from local programming and information uniquely available through local public television stations, which serve as the nationwide back-up path for the Warning Alert and Response Network, known as PBS WARN, which delivers life-saving emergency messaging to communities across the country.

“We’re proud to collaborate with broadcasters across the country as they transition to other channels, and doubly proud to support local public television’s public service mission and help ensure millions of kids in rural America continue to have access to public television’s high-quality, educational programming,” said Neville Ray, chief technology officer of T-Mobile. “Moves like this will help us expand our network into these underserved areas and give consumers a new level of wireless coverage and choice.”