Regulation Article Critiques the Weak IP Rights Regime

The Spring 2025 issue of Regulation magazine features an eye-opening article by Law Professor Jonathan M. Bartlett titled "The Perils of 'Free' Information." In the article, Mr. Bartlett tackles the narrative that IP owners are exploitative monopolists that inflate prices and bar competition and corresponding legal and policy strategies employed by certain tech platforms "to weaken IP rights to reduce the costs of securing content and tech assets, which are then monetized within a portfolio of complementary products and services." 

One of Mr. Bartlett's insights is that "even [IP-free] markets usually restore some form of property rights—whether implemented by IP law, contract, or technology—to sustain incentives to invest in innovation." He describes how tech platforms have migrated toward closed-access subscription models that rely on technology and contracts to serve as a function equivalent of IP rights. The weakening of IP rights undermines innovation and market entry by new competitors. According to Mr. Bartlett, "[w]hile innovation in information-technology industries can sometimes persist in a weak-IP environment, it would likely take place principally within the bundled product-and-service ecosystem maintained by tech platforms or the vertically integrated structures maintained by large bricks-and-mortar producers." 

 

Mr. Bartlett writes that "IP rights are often a precondition for sustaining the innovators and artists that drive knowledge ecosystems." He is in good company in writing this. The idea that creators and inventors require secure and exclusive rights in their writings and discoveries to fully realize their ideas and bring them to market goes back to the earliest days of our nation when the Framers of the U.S. Constitution drafted the Article I, Section 8 IP Clause. 

 

Mr. Bartlett's article is worth reading in full. It is based on his important new book, The Big Steal: Ideology, Interests, and the Undoing of Intellectual Property (Oxford University Press, 2024).

NO FAKES Act to Combat "Deepfakes" is Reintroduced in Congress

On April 11, the "Nurture Originals, Foster Art, and Keep Entertainment Safe Act of 2025" or "NO FAKES Act" was re-introduced in the U.S. House of Representatives (H.R. 2794) and Senate (S. 1367). The House bill is sponsored by Rep. Maria Elvira Salazar and the Senate bill is sponsored by Sen. Christopher Coons. The NO FAKES Act would bolster individuals' intellectual property rights in their likenesses and voices by recognizing a private right of action against unauthorized and harmful "deepfakes." The bill has bipartisan backing as well as the endorsement of a cross-section of the creative and tech industries. The NO FAKES Act is strong on the merits and the 119th Congress should give it due consideration. 

 

Although generative AI technologies offer potential benefits, they also may be abused. Public displays and dissemination of "deepfake" songs misappropriate the value of recording artists’ voices, damaging the artists economically. Also, generative artificial intelligence (AI) tools and services on the Internet allow users to create "deepfake" explicit pictures and videos of individuals.

 

The NO FAKES Act would address those "deepfake" dangers in a targeted way by establishing a national uniform baseline of legal protection for an individual’s likeness and voice from unauthorized digital replicas. If passed by the 119th Congress and signed into law by President Donald Trump, the Act would make civilly liable anyone who knowingly produces a digital replica without the consent of the rights owner. It also would make civilly liable anyone who knowingly publishes, reproduces, displays, distributes, transmits, or makes the digital replica available to the public without the rights owner's consent. Persons harmed under the Act would have a right to seek statutory or actual damages, recovery of costs and attorneys’ fees, and injunctive relief. 

 

Recognizing the potential benefits of authorized digital replicas, the NO FAKES Act provides that individuals would have the right to license their personas for digital replication by third parties. Additionally, the Act is carefully written to address abuses and it includes safeguards for First Amendment-protected free speech and expression using generative AI tech. It bears emphasis that the NO FAKES Act is about private law – personal rights and intellectual property rights; it is not a federal criminal law bill.

 

A more detailed review of the same bill, previously introduced in the 118th Congress, is provided in my August 2024 Perspectives from FSF Scholars, "The 'NO FAKES Act' Would Protect Americans' Rights Against Harmful Digital Replicas."

In Podcast, Prof. Adam Mossoff Talks Founding Fathers and IP Rights

The January 6th episode of the IP Protection Matters podcast, "The Historical and Constitutional Foundations of Patent Protection," features an interview with Adam Mossoff, Professor of Law at the Antonin Scalia Law School at George Mason University. In addition to being a Senior Fellow at the Hudson Institute and a Visiting Intellectual Property at the Heritage Foundation, Prof. Mossoff is a member of the Free State Foundation's Board of Academic Advisors.

In the podcast episode, Prof. Mossoff discusses the American Founding Fathers' views on intellectual property (IP) rights. As he explains, the Founders "saw intellectual property largely as the same type of property right that arose from the creation of any other type of property right" through their value-creative productive labors. The Founders recognized the importance of protecting intellectual labor and included the IP Clause in Article I, Section 8 of the U.S. Constitution. 

 

Prof. Mossoff then discusses the historical significance of the Constitution's IP Clause, the significance of President George Washington and the First Congress, the differences between IP rights in the American constitutional order and monopolies under old English law, and the importance of IP protections for ensuring the marketability of IP. These basic principles of IP law apply to both copyrights and patents. The latter part of the interview focuses on contemporary patent reform issues. 

 

For an insightful take on IP rights by an excellent scholar, be sure to check out the IP Protection Matters podcast interview with Prof. Mossoff. And for a deeper dive, Prof. Mossoff has published several academic journal articles. 

 

The IP Protection Matters podcast is a project of the Center for Individual Freedom. 

 

P.S. Many of the key themes about the Founders and IP rights in America’s constitutional order that come up in the podcast interview are analyzed in a book that I co-authored with FSF President Randolph J. May, The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective (Carolina Academic Press, 2015). 

World IP Day 2024: Time to Step Things Up Against Online Copyright Piracy

April 26 is World Intellectual Property Day. Copyrights are more important to the U.S. economy today than at any previous time in history. The American Founders had the wisdom and foresight to put copyright protections in the 1787 U.S. Constitution. But securing Americans' rights in creative works such as movies, TV shows, and music from mass online piracy is an ongoing responsibility of Congress. In 2024, Congress should consider establishing a legal process for copyright owners to obtain court orders requiring broadband providers to block access to third-party websites whose entire or overwhelming purpose is to unlawfully traffick copyrighted content. 

According to a January 30 report by the U.S. Trade Representative, commercial-scale copyright piracy causes "significant financial losses for U.S. right[s] holders and legitimate businesses" and it "undermine[s] critical U.S. comparative advantages in innovation and creativity to the detriment of American workers." The report cited a June 2019 study by the Global Intellectual Property Center that found online piracy costs the U.S. economy $29.2 billion in lost revenue each year. The study also found that illegal streaming and file-sharing operations cost about 250,000 American jobs yearly. 

As the Trade Representative's report explained, there is a worldwide "complex ecosystem" for online piracy.Unauthorized Internet Protocol television (IPTV) operators stream vast libraries of copyrighted content, including live sports and premium channels, at below-market prices. "Cyberlocker" sites "act as the hosting and content storage sites for the world's most popular piracy streaming and linking websites." Many cyberlocker sites "offer a tiered revenue sharing system to reward the uploaders of their most popular content," including copyrighted content that has not yet been commercially released to the public. Online infringements also are facilitated by foreign "bulletproof" Internet service providers (ISPs) that "often explicitly advertise leniency in allowing their customers to upload and distribute infringing content" and refuse to comply with U.S. law.

 

In a February 2024 Perspectives from FSF Scholars, "Congress and the Administration Should Move Against Online Copyright Piracy," I identified three ways to better protect Americans' copyrighted works from mass online piracy: (1) confirmation of an Intellectual Property Enforcement Coordinator (IPEC) to engage foreign nations on copyright piracy: (2) stepped-up prosecutorial efforts against commercial streaming piracy operations; and (3) establishment of a "notice-and-stay-down" requirement for major online platforms to prevent serial re-posts of infringing content on their websites as a condition for obtaining immunity for infringements. 

 

But here is a fourth way to combat online piracy and improve protections for copyrighted content: establishment of a legal process for judicial site-blocking of third-party websites that are dedicated entirely or overwhelmingly to unlawful online copyright piracy.

 

In an April 9 speech, Motion Picture Association (MPA) Chairman and CEO Charles Rivkin called digital piracy "a central threat to the security of workers, audience, and the economy at large." His estimate of the damages from such piracy is stunning: "In the U.S. alone, it steals hundreds of thousands of jobs from workers and tens of billions of dollars from our economy, including more than one billion in theatrical ticket sales."

 

Mr. Rivkin pledged that his organization is going to work with Congress on judicial site-blocking legislation that "focuses only on sites featuring stolen materials" and that is "within the bounds of due process, requiring detailed evidence establishing a target's illegal activities and allowing alleged perpetrators to appear in a court of law." On behalf of MPA, he also pledged an "unflinching commitment to the First Amendment."

 

Indeed, due process and free speech are essential starting points for any judicial site-blocking legislation worth considering. Such a bill must be tightly focused on websites that are entirely or overwhelmingly dedicated to trafficking commercial copyrighted content, not viewpoints expressed on such sites. It must authorize only a private civil cause of action and not be a potential tool for government censorship of lawful speech. Additionally, a worthy judicial site-blocking bill would avoid imposing any undue burdens or costs on compliant broadband ISPs. Also, there must be a legislative process that provides transparency on the content of bills and amendments, committee hearings, and opportunities for public input.

 

On World IP Day, Congress should remember the billions in economic damages suffered by American copyright owners each year because of the global online piracy ecosystem. In the months ahead, Congress should develop and consider a constitutionally sound bill authorizing judicial orders to block access to third-party sites that exist for the purpose of engaging in unlawful mass online infringements. 

Court Decision Brings Clarity to the Law of Contributory Copyright Infringement

On October 16 of this year, the U.S. Court of Appeals for the 10th Circuit issued a significant decision regarding contributory liability for copyright infringement. In Greer v. Moon, the court concluded that the plaintiff-appellant sufficiently stated a claim for contributory copyright infringement against the defendant-respondents – a  website and its operator – by alleging that digital copies of a copyrighted book and a copyrighted music recording were posted on the website without authorization, the site refused to comply with a takedown notice, and that the site's conduct contributed to the infringement by encouraging the site's users to commit direct infringement.

Contributory liability is a form of secondary liability for copyright infringement, and it requires that a copyright owners show: (1) existence of a direct infringement; (2) a party's knowledge of the direct infringement; and (3) a party's contribution to the direct infringement by causing or materially contributing to it. 

The lower court had dismissed the plaintiff-appellant's infringement claims against the website and its operator on the grounds that merely permitting infringing material to remain on the site without having induced or encouraged "the initial infringement" is not enough to plead infringement based on contributory liability. 

 

However, the 10th Circuit concluded that the defendant-respondents' alleged conduct went beyond passive behavior in merely permitting infringing content to remain on the site. According to the court, a reasonable inference from the facts alleged is that the site's reposting of the plaintiff-appellant's copyright takedown notice – apparently to belittle the copyright owner and the notice as well as for acknowledge that the sites users would continue to engage in infringing activity – amounted to encouragement of the site's users to engage in direct infringement of the plaintiff-appellant's protected works. 

 

Importantly, the 10th Circuit determined that the lower court's insertion of "initial infringement" qualifier to making a claim contributory liability for infringement was improper. It wrote: "We cannot understand initial to be a literal requirement supported by applicable law, otherwise contributory infringement liability would rarely, if ever, lie for ongoing repeated infringements."

 

In Greer v. Moon, the 10th Circuit rightly rejected a would-be barrier to obtaining relief for contributory copyright infringement because it is unsupported by law. Unfortunately, courts in other cases have sometimes narrowed the scope of traditional secondary liability principles as applied in the context of Section 512 of the Digital Millennium Copyright Act (DMCA). Free State Foundation President Randolph May and I address this in our June 2020 Perspectives from FSF Scholars, "Copyright Office Report Should Spur Modernizing the DMCA." 

Supreme Court Declines to Hear Case on Direct Copyright Infringement

On October 2, the Supreme Court denied certiorari in ABKCO Music, Inc. v. Sagan (2022). I wrote about this case in my September 20 Perspectives from FSF Scholars, "Supreme Court Should Clarify the Law on Direct Infringement of Copyrighted Works." By declining to grant review of the case, the court unfortunately passed up the opportunity to set the law straight that a defendant that orders and participates in an infringement can be liable for direct infringement even if the defendant did not personally perform the literal act of copying the copyrighted work. 

As explained in my Perspectives paper, the Second Circuit went off course in Sagan by improperly applying the "volitional conduct" requirement for direct infringement liability. The lower court wrote that "direct liability attaches only to 'the person who actually presses the button.'" But that is at odds with a copyright owner's "exclusive rights to do and to authorize" under Section 106 of the Copyright Act. As the Supreme Court observed, in Sony Corp. of America v. Universal City Studios, Inc. (1984), "an infringer is not merely one who uses a work without authorization by the copyright owner, but also one who authorizes the use of a copyrighted work without actual authority from the copyright owner."

 

By refusing to hear the case, the court lets stand the Sixth Circuit's decision that unduly narrows the traditional understanding direct infringement and that conflicts with decisions in at least other circuits. For instance, in Society of the Holy Transfiguration Monastery, Inc. v. Gregory (2012), the First Circuit emphasized that an infringer includes "one who authorizes the use of the copyright work without actual authority from the copyright owner" – quoting Sony. And in Lewis Galoob Toys, Inc. v. Nintendo of America, Inc. (1992), the Ninth Circuit recognized that "infringement by authorization is a form of direct infringement."

 

For now, it is to be hoped that other lower courts will decline to follow the Sixth Circuit's misapplication of the volitional conduct requirement and unduly narrow definition of direct infringement that undermines the ability of copyright owners to enforce their exclusive rights. 

Stronger Copyrights Would Give Added Boost to Rising Music Market

On March 9, the Recording Industry Association of America (RIAA) released its "Year-End 2022 RIAA Revenue Statistics." RIAA's report highlights continuing annual increases in U.S. recorded music market revenues. Hopefully, recording artists also do well here in 2023. But Congress can promote the continued success and expansion of economic opportunities in the copyright-intensive music recording industry by passing the American Music Fairness Act – S.253 and H.R. 791.

RIAA's report found that retail revenues for the U.S. sound recording industry grew to $15.9 billion in 2022, up from $15 billion in 2022. Revenues from paid subscription music services increased 8% to 10.2 billion in 2022, accounting for 77% of streaming revenues and almost two-thirds of total revenues. Interestingly, in 2022, vinyl records outsold music CDs for the first time since 1987. For the sixteenth year in a row, revenues for vinyl record sales have increased. And in 2022, revenues from sales of vinyl grew 17%, constituting $1.2 billion of the $1.7 total for sales of physical copies that year. Also, $495 million in revenues were generated from sales of digital downloads, an annual figure that amounted to only 3% of annual U.S. recorded music revenues last year. Digital download revenues have declined several years in a row since 2012, when they constituted 43% of annual recorded music revenues. 

Bearing those overall positive findings in mind, there are steps that Congress can and should make to promote flourishing and opportunity in recorded music marketplace. One significant thing that Congress can do is pass the American Music Fairness Act, which was reintroduced in the 118th Congress as S.253 and H.R. 791. 

 

Existing copyright law exempts terrestrial AM/FM radio stations from paying royalties to owners of copyrighted sound recordings when their music is given radio airplay. Online subscription services and online ad-supported services that play copyrighted sound recordings pay royalties to the owners of those sound recordings. But no such payments are required by AM/FM stations that profit from broadcasting copyrighted sound recordings by drawing audiences and resulting ad revues. 

 

The American Music Fairness Act would rectify this unequal legal treatment and the unfairness to copyrighted owners who receive no compensation when third party terrestrial AM/FM stations commercially exploit their creative works. S.253 and H.R. 791 would require AM/FM stations to pay royalties to owners of sound recordings for the use of their intellectual property just like online streaming services do.  

 

An oft-overlooked downside to the current terrestrial AM/FM station exemption for paying public performance royalties to copyrighted sound recording owners is that the exemption effectively precludes the sound recording owners from receiving royalties from foreign stations that play their music over the air. So long as domestic terrestrial AM/FM radio stations have no obligation to pay royalties for broadcasting copyrighted sound recordings owned by American, foreign radio stations are similarly relieved from having to pay those royalties when they play copyrighted music owned by Americans. Passing of the American Music Fairness Act into law would therefore enable American copyright owners to tap royalty streams in foreign nations. Notably, the legislation takes a light-touch approach to smaller commercial and non-profit stations by treating them to a a low, flat royalty rate. 

 

My February 2022 Perspectives from FSF Scholars, "American Music Fairness Act Would Secure Copyrights in Sound Recordings," spotlighted the hearing that the legislation received a in the House Judiciary Committee during the 117th Congress. The 118th Congress is now primed to advance the American Music Fairness Act into law. 

Report Spotlights Economic Value and Jobs Created by U.S. Copyright Industries

On December 14, the International Intellectual Property Association (IIPA) published "Copyright Industries in the U.S. Economy: The 2022 Report." The report analyzes the contributions to the U.S. economy between 2018 and 2021 by "core copyright industries" whose primary purpose is to create, produce, distribute, or exhibit copyrighted materials.

According to IIPA's 2022 report:

• In 2021, core copyright industries added over $1.8 trillion in value to the U.S. gross domestic product (GDP), amounting to 7.76% of the U.S. economy. 
• Core copyright industries employed 9.6 million workers in 2021, comprising 5.53% of total private employment in the U.S. 
• Between 2018 and 2021, core copyright industries grew at an aggregate annual rate of 6.15%, an amount three times higher than the average annual 1.76% growth rate of the entire U.S. economy during that four-year timespan. 
• Core copyright industries accounted for 52.26% of the U.S. digital economy in 2021.
• Sales of U.S. copyright products in "selected" core industry sectors – recorded music; motion pictures, TV, and video; software publishing; and non-software publications including newspapers, books, and periodicals – amounted to $230.3 billion in 2021, an increase. 

IIPA's 2022 report also estimates the value of economic contributions by "total" copyright industries in the U.S., including industries in which copyrighted goods are only an aspect of their businesses as well as industries that facilitate the creation and production of copyrighted works and industries that develop computers and other devices that support usage of copyrighted goods. According to the report, the value added to GDP by total copyright industries was more than $2.9 trillion, or 12.52% of the U.S. economy. 

In our book, Modernizing Copyright Law for the Digital Age: Constitutional Foundations for Reform (Carolina Academic Press, 2020), Free State Foundation President Randolph and I credit the wisdom of the American Founders in according copyright protections to authors and other creative artists in the U.S. Constitution's Article I, Section 8 Copyright Clause. As we explain in chapter 3 of our book, those constitutional protections rest on a foundational understanding of copyrights as unique forms of private property that can be used and exchanged in a free market setting. IIPA's 2022 report shows that the American public, including the creators who make their living by creating, performing, and selling copyrighted content, continue to benefit greatly from the Founders' constitutional policy favoring copyright protections.  

American Music Fairness Act Advances Out of House Committee

On December 7, the House Judiciary Committee voted to recommend the American Music Fairness Act – H.R. 4130 – in the form of a substitute bill. The legislation now goes to the full House of Representatives for consideration. The House – and then the Senate – should pass the bill into law and secure full public performance rights in copyright owners' music sound recordings. 

Under existing copyright law, terrestrial commercial AM/FM radio stations can profit off of copyrighted music sound recordings by broadcasting them to attract audiences and then draw revenue from running ads – all without paying royalties to the recordings' owners. The American Music Fairness Act would finally change this. The bill would require AM/FM stations to pay royalties to owners of sound recordings for the use of their intellectual property just like satellite radio and Internet radio stations pay public performance royalties to sound recording owners.

An important aspect of the American Music Fairness Act is that the bill includes a low, flat royalty rate for smaller commercial stations and for non-profit stations. In addition to ensuring that sound recording owners finally receive compensation for third-parties' commercial use of their copyrighted works in America, the bill would enable sound recording owners to begin receiving from foreign radio stations public performance royalties that have long been withheld because of the shortcomings of U.S. copyright law.

Also, nobody in Congress should take seriously the claim that royalty payments to copyright owners for public use – including commercial use – of their works is a tax. Royalties are not taxes. There are obvious differences between paying taxes or fees to the government and paying for the right to make copies, publicly display, or publicly perform another's copyrighted property. (I address this matter more in my blog post of September 6, 2022.) The American Music Fairness Act is a pro-property rights bill. 

For further background on the American Music Fairness Act, see my February 2022 Perspectives from FSF Scholars, "American Music Fairness Act Would Secure Copyrights in Sound Recordings," as well as my April 2021 Perspectives, "Congress Should Secure Full Copyright Protections for Music Sound Recordings."

Arrests Made in Criminal Copyright Infringement Case Involving E-Book Piracy Ring

On November 16, the U.S. Attorney's Office for the Eastern District of New York announced the indictment and arrest of two Russian nationals for criminal copyright infringement and other charges in relation to their alleged operation of a massive online e-book piracy website operation.

The Office's press release states:

As alleged in the indictment and court filings, Z-Library bills itself as "the world's largest library" and claims to offer more than 11 million e-books for download.  Z-Library, which has been active since approximately 2009, offers e-book files in a variety of file formats, stripped of their copyright protections, and encourages users to upload and download titles. Many of the e-books offered by Z-Library are protected intellectual property for which authors hold copyrights and publishers hold exclusive distribution rights, and which Z-Library has no right or license to distribute, and which are available elsewhere only with anti-circumvention measures applied. As such, a central purpose of Z-Library is to allow users to download copyrighted books for free in violation of U.S. law. In addition to its homepage, Z-Library operates as a complex network of approximately 249 interrelated web domains. As part of this action, those domains were taken offline and seized by the U.S. government.

Like any other defendants, the defendants named in U.S. v. Napolsky and Ermakova are entitled to a presumption of innocence, and we can expect a future verdict based on the evidence. But what may safely be said at this point is that the trafficking of copyrighted works that is alleged in the complaint is precisely the type of criminal conduct that federal law enforcement ought to be targeting. Civil copyright enforcement is typically ill-equipped to deal with mass-scale piracy operations run by criminals whose intent is to evade the law. 

 

Free State Foundation President Randolph May and I address the topic of criminal copyright enforcement in our book, Modernizing Copyright Law for the Digital Age: Constitutional Foundations for Reform (2020).

Court Rules on Preemption of Publicity Rights Involving Copyrighted Works

On October 4, the U.S. Court of Appeals for the Second Circuit ruled that right of publicity claims brought by a plaintiff radio entertainer under state law are preempted by the Copyright Act because those claims focused upon copyrighted works involving the plaintiff rather than on his likeness or identity. 

The plaintiff in Melendez v. Sirius XM Radio, Inc. was a performer on a once-popular terrestrial broadcast radio program from 1988 to 2004. Thereafter, satellite radio provider Sirius XM licensed and airs new episodes of that program as well as past episodes that featured the plaintiff. The plaintiff filed a lawsuit against Sirius XM, alleging his right of publicity under California common law and statutory law were violated because his name and likeness were used for commercial gain without permission when Sirius XM aired promo ads and posted online ads for the program that used excerpts of the plaintiff's performances from archival episodes.

Section 301 of the Copyright Act contains a preemption clause: 

On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State. 

Free State Foundation President Randolph May and I have written about the national framework for copyrights established in the Copyright Act and Section 301's preemption of state laws in other contexts, including in our March 2022 Perspectives from FSF Scholars, "State Laws Forcing Publishers to License Ebooks to Libraries Are Unlawful."

In Melendez, the Second Circuit applied Section 301 using a two-part test to determine whether a state law claim is preempted by the Copyright Act. The first prong of the test is called the "subject matter" requirement, which applies when the claim applies to a worked fixed in a tangible medium and that is within the ambit of a category of copyrightable works. And the second prong is called the general scope or equivalence requirement, which applies when the claim involves a right that is equivalent to any of the exclusive rights that are within the general scope of Section 106 of the Copyright Act, such as the rights of reproduction and distribution.

The Second Circuit held that the state law claims raised by the plaintiff satisfied the two-part test for preemption. The court determined that the plaintiff’s statutory and common law publicity right claims applied to copyrighted works – the archival radio broadcast programs – and it also determined that his claims were not directed at the plaintiff's name, likeness, or identity separate from or beyond those copyrightable radio broadcasts.  

The Second Circuit's decision in Melendez applying Section 301 to the state publicity right claims is in accord with circuit precedent from 2020, and the court cited similar preemption decisions from the Eighth and Ninth Circuits. Apparently, there is a circuit split on this issue insofar as the Fifth, Seventh, and Tenth Circuits have rejected preemption when the state right of publicity claims involve commercial or advertising uses. 

Unless or until the Supreme Court takes up a case to resolve the circuit split, private parties who purchase or license copyrighted works should be alert to the possibility that state law claims, such as right of publicity, may be implicated by their prospective use of the copyrighted works. Those implications likely can be addressed through negotiated contract terms.  

Recording Music Revenues Up: Stronger Copyrights Would Increase the Pot

Late September of this year, the Recording Industry Association of America (RIAA) released its "Mid-Year 2022 RIAA Revenue Statistics." RIAA's report reveals many interesting and positive trends and data points for the U.S. recorded music market. The report also ought to serve as a reminder that the sound recording industry is copyright intensive and that Congress can bolster copyrights for owners of music recordings by passing the American Music Fairness Act.

According RIAA's report, during the first half of 2022, retail revenues for the U.S. sound recording industry grew to $7.7 billion, up from $7 billion during the first half of 2021. And wholesale revenues rose to $4.9 billion during the first half of the year, up $300 million compared to the first half of the prior year. 

Streaming is overwhelmingly the dominant source of revenue for the sound recording industry, as about 84% of its revenues during the first half of 2022 came from streaming services. Of the $6.5 billion generated by streaming during the first half of the year, about 78% or $5 billion came from paid streaming subscription services. Meanwhile, revenues from digital downloads of single tracks and albums declined 20% to $256 million, amounting to only 3% of total revenues for the recorded music industry. As RIAA's report shows, paid subscriptions have continuously increased in recent years and have now reached the 90 million subscriber mark.

 

Conversely, RIAA reported declines in revenues from digital and customized radio services such as SiriusXM and Internet radio stations. Total revenues from that category of services dropped 3%, down to $556 million. Notably, U.S. copyright law does not secure a public performance right for sound recording owners when AM/FM terrestrial radio stations broadcasts their music. As a result, direct revenues to the music recording industry from airplay on terrestrial radio is effectively zero. 

In terms of revenues from retail sales of physical products, revenues from CD sales declined 2% to $200 million. CD sales constitute 26% of physical revenues. Yet revenues from vinyl records continue to grow. According to RIAA's report, "[r]evenues from vinyl albums grew 22% to $570 million, and vinyl's share of the physical market increased from 68% to 73%."

Having noted these overall positive trends in music recording revenues, there are things that Congress can do to help promote the music marketplace and grow the pie bigger for recording artists and music fans. Perhaps the most immediate thing Congress can do is pass the American Music Fairness Act – H.R. 4130 and S. 4932. 

As previously mentioned, current copyright law exempts terrestrial AM/FM radio stations from having to pay royalties to owners of copyrighted sound recordings when their music is played on the air. This means that commercial AM/FM stations can profit off of copyrighted sound recordings by broadcasting them to attract audiences and then draw revenue from running ads. 

The American Music Fairness Act would require AM/FM stations to pay royalties to owners of sound recordings for the use of their intellectual property just like satellite radio and Internet radio stations pay public performance royalties to sound recording owners.

 

So long as the U.S. exempts American AM/FM stations from paying royalties to American sound recording owners, foreign stations have no obligation to pay royalties for broadcasting copyrighted sound recordings owned by Americans. But by passing the American Music Fairness Act into law, Congress would open up royalty revenue streams from foreign radio stations and American copyright owners would receive revenues that they rightfully deserve. Importantly, the legislation includes a low, flat royalty rate for smaller commercial stations as well as for non-profit stations. 

As discussed in my February 2022 Perspectives from FSF Scholars, "American Music Fairness Act Would Secure Copyrights in Sound Recordings," H.R. 4130 has received a hearing in the House Judiciary Committee. And S. 4932 was introduced in September of this year. There is still time in the 117th Congress for the American Music Fairness Act to become law. Congress ought to make it so. 

Supreme Court Hears Oral Arguments Copyright Case on "Transformative" Works

On October 12, the U.S. Supreme Court held oral arguments in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith. The case involves a series of prints and illustrations by the late Andy Warhol that are based on a copyrighted 1981 photo of the late music artist Prince. One image from that series was published – without authorization of the owner of the photo – on a magazine cover in May 2016. At issue in the case is the fair use doctrine and the nature or role of "transformative" works in fair use analysis. 

The Petitioner, Andy Warhol Foundation, presented  the question to the Court in a hedged manner: 

Whether a work of art is "transformative" when it conveys a different meaning or message from its source material (as this Court, the Ninth Circuit, and other courts of appeals have held), or whether a court is forbidden from considering the meaning of the accused work where it "recognizably deriv[es] from" its source material (as the Second Circuit has held). 

Fair use is an affirmative defense to copyright infringement, and it consists of four non-exclusive factors that are to be considered in evaluating whether the use of a copyrighted work is "fair:" (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Under Supreme Court precedents such as Campbell v. Acuff-Rose Music, Inc. (1994), courts typically analyze the first factor according to the degree to which the use is "transformative" – that is, "whether the new work merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message." 

 

However, Section 106(2) secures to copyright owners the exclusive right to prepare "derivative works" based upon the copyrighted work. According to Section 101:

A "derivative work" is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, condensation, or any other form in which a work may be recast, transformed, or adapted." A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole represent an original work of authorship, is a "derivative work."

Some insightful commentaries have been published about Andy Warhol Foundation v. Goldsmith, and Free State Foundation scholars likely will address the case more definitively once the Supreme Court has issued its decision. Until then, a general observation here is that the Petitioner's seeming overemphasis on an artist's subjective intent or interpretation of a copyrighted work as rendering a secondary work "transformative" and thus a fair use would, if adopted by the Court, encroach significantly on a copyright owner's exclusive right to prepare derivative works. During the oral arguments, Justice Amy Coney Barrett appeared to make this point – or at least a similar point – when she stated to the Petitioner's counsel: "And it seems to me like your test, this meaning or message test, risks stretching the concept of transformation so broadly that it kind of eviscerates Factor 1 and puts all of the emphasis on Factor 4." 

Additionally, I second FSF President Randolph May in commending the Committee for Justice for its amicus curiae brief in this case. As explained in his August 18 blog post, CFJ's amicus brief skillfully sets forth the conceptual underpinnings of copyright law as it pertains to the fair use doctrine. And their brief applies that background understanding to the transformative works claims being made in Andy Warhol v. Goldsmith.

In Debate Over Radio Royalties, Congress Should Favor Property Rights

An article published in Law360 on August 31 covers the ongoing debate in Congress over whether AM/FM radio stations ought to pay royalties when the stations play copyrighted sound recordings over-the-air. Mixed into the debate is an attempt by some radio broadcasters to equate copyright royalties with taxes. But it's a ruse and easy to see through. Royalties are rooted in intellectual property (IP) rights, and Congress should recognize the right of sound recording owners to receive royalties when their copyrighted music is played on the radio. 

The Law360 article mentions House Concurrent Resolution 33, which opposes recognizing the exclusive right of music recording owners to receive royalties when radio stations, including for-profit stations, broadcast their intellectual property (IP). House Concurrent Resolution 33 (H.Con.Res.33) states that "Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings."

 

It's bothersome that the House resolution lumps in public performance royalties with government fees and taxes. There are obvious, categorical differences between those things, but the resolution's language appears intended to blur the distinctions. Royalties are not taxes or government fees. Royalties come from private property rights. They are proceeds from the use of one's private property by another private party. 

 

The House resolution gets it right on taxes, but wrong on royalties. Congress should not impose new government fees or taxes on users of copyrighted sound recordings like AM/FM radio stations. But Congress also should not continue to privilege radio stations with free rider use of copyrighted sound recordings that belong to third parties. That privilege unjustly undermines the property rights of sound recording owners to receive a return when their private property is commercially exploited. 

 

For a legislative approach to this topic that better respects IP rights, see my August 2021 Perspectives from FSF Scholars, "Congress Should Secure Full Copyright Protections from Sound Recordings" and my February 2022 Perspectives, "American Music Fairness Act Would Secure Copyrights in Sound Recordings." As explained in those papers, the American Music Fairness Act (H.R. 4130) would finally recognize that sound recording owners have a public performance right to receive royalties when their copyrighted works are played over-the-air by AM/FM radio stations. The Constitution's Article I, Section 8 Copyright Clause gives Congress the responsibility to secure property rights in creative works such as sound recordings. And the American Music Fairness Act, if enacted, would achieve a pro-property rights result. The House Judiciary Committee ought to favorably report the bill and the House ought to pass it.