Internet Archive's Fair Use Defense Fails Again at Appeals Court

On September 4, the U.S. Court of Appeals for the Second Circuit issued its decision in Hachette Book Group, Inc. v. Internet Archive. The Second Circuit panel affirmed a District Court's March 2023 entry of summary judgment against Internet Archive for infringing the copyrights of four book publishers in 127 books.  

Internet Archive created unauthorized digital copies of those books as part of its "Free Digital Library" and mostly. Beginning in 2018, the Internet Archive made digital copies of those copyrighted books available online to the public. Starting in 2020, the Internet Archive provided the public access to those copyrighted books on a one-to-one owned-to-loaned ratio under a practice that the Internet Archive called "Controlled Digital Lending" or "CDL." The District Court found that all of the elements for infringement were established by the publishers, and the court rejected Internet Archive's fair use defense.

The Second Circuit's decision mostly tracked with the District Court's decision, concluding that "IA's lending of its 'own' digital books that 'are commercially available for sale or license in any electronic text format'" is not fair use. 

According to the appeals court, "because IA's Free Digital Library primarily supplants the original Works without adding meaningfully new or different features that avoid unduly impinging on Publishers' rights to prepare derivative works, its use of the Works is not transformative." Although the Second Circuit differed from the District Court in concluding that the alleged fair use was not commercial in nature, it nonetheless held that "because the Works in Suit are 'of the type that the copyright laws value and seek to protect,' the second fair use factor favors Publishers." The court determined that copying and posting the entirety of the work was not secondary to some other use that would offer significant functional benefits not associated with the original works and that "not only is IA's Free Digital Library likely to serve as a substitute for the originals, the undisputed evidence suggests it is intended to achieve that exact result." 

 

The Second Circuit further determined that "IA has not met its 'burden of proving that the secondary use does not compete in the relevant market[s]' and that “[i]ts empirical evidence does not disprove market harm, and Publishers convincingly claim both present and future market harm." The court concluded that "[a]ny short-term public benefits of IA's Free Digital Library are outweighed not only by harm to Publishers and authors but also by the long-term detriments society may suffer if IA's infringing use were allowed to continue." And it found that all of the fair use factors favored the copyright owners. 

 

Aside from its loss in Hachette, Internet Archive faces additional troubles due to alleged infringements of copyrighted music recordings." My September 2023 Perspectives From FSF Scholars, "Internet Archive to Face the Music for Mass Copyright Infringement," analyzes copyright infringement claims raised in UMG Recordings v. Internet Archive. At issue in that case is Internet Archive's "Great 78 Project," which allegedly copied, stored, distributed, and publicly performed thousands of copyrighted pre-1972 music recordings without authorization. 

 

The decision in Hachette may offer persuasive insights for the District Court in UMG Recordings, insofar as Internet Archive again relies on fair use as an affirmative defense to infringement claims. For starters, the "Great 78 Project" involves no apparent transformative use or significant functional new benefit not inherent in the original works themselves. Scratches or analog background noises from digital recordings of vinyl copies of pre-72 recordings being played on turntables are hardly transformative. Expect FSF scholars to have more to say in the future about the ongoing case of UMG Recordings v. Internet Archive.

Ninth Circuit Turns Down State Copyright Claims in Narrow Decision

On August 23, a panel of the U.S. Court of Appeals for the Ninth Circuit determined that the California copyright statute's protections for the "exclusive ownership" of sound recordings made before 1972 did not include the right of public performance. In so doing, the Ninth Circuit reversed a District Court decision that I wrote about in a March 2015 blog post. Back in 2015, state copyright claims regarding public performances of pre-72 sound recordings had fared well in court. But as the Ninth Circuit observed in Flo & Eddie, Inc. v. SiriusXM Radio, Inc., those claims did not find favor at the appellate level. 

In sum, the Ninth Circuit panel in Flo & Eddie determined that the there was no common law recognition of public performances in sound recordings when California first used the term "exclusive ownership" into its 1872 copyright statute. And the Ninth Circuit panel concluded there was no evidence sufficient to overcome the presumption that the common law rule of no public performance rights was changed by the statute's use of that term in 1872 – or in 1982, when California revised the statute.

The legal question about whether public performance rights in pre-72 sound recordings is offered under state law seemed to be a strong candidate for resolution by California's highest court of law rather than by federal courts. In fact, that question was certified to the California Supreme Court in a related case called Flo & Eddie, Inc. v. Pandora Media, Inc. But the California Supreme Court dismissed that case before deciding the question. That dismissal was prompted by Congress's passage of the Music Modernization Act of 2018 (MMA). 

The MMA, signed into law by President Donald Trump, finally recognized public performance rights in copyrighted sound recordings pressed before 1972. Thus, on a prospective basis, copyright owners of pre-72 sound recordings enjoy public performance rights when their creative works are digitally transmitted on satellite radio or by Internet webcasters. And most claims regarding public performances of pre-72 sound recordings prior to the MMA were resolved in a major class action settlement. Although the MMA preempted most state law claims regarding pre-72 sound recordings, Flo & Eddie's claims remained alive – at least until the Ninth Circuit's decision. But in light of the MMA and the legal settlement, the Ninth Circuit's decision ultimately is a narrow one. 

Pre-72 Sound Recording Owners Now Receive Royalties They Deserve

October 11 marked the one-year anniversary of the signing of the Music Modernization Act of 2018. Free State Foundation President Randolph May and I supported the MMA, including its provision to ensure that copyright owners of sound recordings made before early 1972 receive federal protections for public performances of their recordings via digital audio transmission just like post-72 sound recordings.  

According to SoundExchange's "Digital Radio Report" for the third quarter of 2019: "SoundExchange is already administering the majority of the MMA’s provisions, distributing more than $10M in royalties to creators of pre-72 recordings and millions more to producers."

The U.S. Constitution’s Article I, Section 8 Copyright Clause empowers Congress to secure exclusive rights in creative works so that the creators of such works can enjoy the fruits of their labors. The MMA appears to be fulfilling that constitutional imperative.  

President Trump Signed the Music Modernization Act

Yesterday, President Trump signed the "Orrin Hatch-Bob Goodlatte Music Modernization Act" (H.R. 1551), which creates a compulsory blanket licensing system for music recordings, updates the rate standards applicable to music licensing, provides copyright royalties to pre-1972 artists, and provides compensation to producers, mixers, and sound engineers.

President Trump released the following statement when he signed the bill:

The Music Modernization Act closes loopholes in our digital royalty laws to ensure that songwriters, artists, producers, and providers receive fair payment for the licensing of music. 

Streaming has made music more accessible than ever, yet our laws have not kept up with the pace of technology.  As such, artists of all varieties and all career stages are losing out on revenue that they have rightly earned

This legislation will help ensure that artists from eras long ago, in addition to modern day, can retire in security, and that current and upcoming artists can make a living by creating amazing works that captivate their fans and entertain our nation — and the world. 

FSF scholars have advocated for Congress to pass the Music Modernization Act in order to better secure copyright protections and royalty payments for recording artists, songwriters, and other music professionals.

Further Readings:

Randolph May and Seth Cooper, "A Constitution Day to Strengthen Copyright Protection," Perspectives from FSF Scholars, Vol. 13, No. 35, (September 17, 2018).

Seth Cooper, "Senate Should Vote on the Bill to Modernize Music Copyright," FSF Blog, (August 9, 2018).

Seth Cooper, "Senate Should Advance Consensus Bill to Modernize Music Copyright," FSF Blog, (May 15, 2018).

Randolph May and Seth Cooper, "World IP Day – An Opportune Time to Modernize Music Copyright Protections," Perspectives from FSF Scholars, Vol. 13, No. 14, (April 23, 2018).

Senate Should Vote on the Bill to Modernize Music Copyright

Congress last overhauled the Copyright Act back in 1976, and provisions in the old law are often a poor fit for today’s digital music marketplace. Right now Congress has a stellar opportunity to make overdue updates to music copyright law. In April, the House of Representatives unanimously passed the Music Modernization Act. The Senate Judiciary Committee unanimously passed a similar bill in June. Rather than let this important legislation get sidetracked now, the Senate should act promptly to vote on the Music Modernization Act. 

The Music Modernization Act is an omnibus bill that would better secure copyright protections and royalty payments for recording artists, songwriters, and other music professionals. If passed by the Senate and signed into law, the bill would: (1) secure to copyright owners of sound recordings made before 1972 federal copyright protections for public performances of their recordings via digital audio transmission; (2) set up a streamlined process for producers, mixers, and sound engineers to receive direct royalty payments via SoundExchange; and (3) enable more timely and accurate payment of market-based “mechanical license” royalties to songwriters while providing blanket licenses for digital streaming services. 

Despite unanimous votes in the House of Representatives (H.R.5547) and in the Senate Judiciary Committee (S.2823), there are reports that the Music Modernization Act is being held up by just a few members of the Senate on account of the bill applying a uniform market-based “willing buyer/willing seller” royalty rate and providing full protection terms to pre-72 sound recordings. But these objections don’t hold up. They should not keep the Senate from taking a timely vote on the Music Modernization Act.

First, the “willing buyer/willing seller” royalty rate standard is the most sensible standard for achieving the purpose of music copyright law, and the Music Modernization Act’s expansion of that standard to pre-72 sound recordings and to music compositions is commendable. 

Under many circumstances, music copyright holders are subject to a compulsory licensing system in which licensees must pay royalties according to a rate formula set by Congress and applied by the Copyright Royalty Board. Although copyright holders are free to negotiate royalties with music service providers, those rates operate as backstops when negotiating is particularly burdensome or unsuccessful. Unfortunately, current law imposes different music copyright royalty rates depending on the delivery technology or service involved. Such a non-neutral approach is arbitrary and unjustifiable. Copyright law should not specially privilege one type of technology or service over others. Rather, it should apply the same standard across the board.  

The Music Marketplace Act sensibly follows the U.S. Copyright Office’s 2015 report recommendationthat “[a] single, market‐oriented ratesetting standard should apply to all music uses under statutory licenses.” Indeed, the “willing buyer/willing seller” standard is market-oriented in that it is intended to “most clearly represent the rates and terms that would have been negotiated in the marketplace” among willing parties. As mentioned above, the Music Modernization Act would apply the “willing buyer/willing seller” standard to public performances via digital audio transmission of pre-72 recordings and also make that standardthe basis for mechanical licensing royalties paid to songwriters and other copyright owners of musical compositions. Thus, the Music Modernization Act would more closely align music copyright policy with free market principles and more equitably secure the intellectual property rights in sound recordings and music compositions. 

Second, the Music Modernization Act is on principled ground in securing the same copyright protection terms for pre-72 sound recordings that apply to post-72 sound recordings. The Senate should not be deterred from voting on the Music Modernization Act because one or a few members may hold outlier opinions about how long copyright protections ought to last. 

In general, copyright protection terms for sound recordings made on or after 1972 run for the life of the author plus 70 years. This makes sense in the Digital Age, since copyrights in sound recordings are far easier to transfer and track than previously, and the economic value of such rights are potentially far greater than ever before. It is the copyright owners who have the foremost right to receive proceeds from their intellectual property. 

Recent decisions under state law indicate that pre-72 sound recordings are already protected under many or perhaps most state laws. But state litigation is complex, costly, and uncertain. An important upshot to the Music Modernization Act is that it offers a federal-level resolution to myriad state-level disputes over public performance royalties involving pre-72 recordings. Federal copyright protection terms for pre-72 sound recordings are a critical component of that resolution. 

The U.S. Constitution’s Article I, Section 8 Copyright Clause entrusts Congress with the power to secure exclusive rights in creative works so that the producers of such works can enjoy the fruits of their labors. Consistent with the purpose of the Constitution’s Copyright Clause, the Music Modernization Act would better secure music copyright protections in the Digital Age. The Senate should promptly give the Music Modernization Act a vote on its merits.

Senate Should Advance Consensus Bill to Modernize Music Copyright

On Tuesday, May 15, the Senate Judiciary Committee will hold a hearing on “Protecting and Promoting Music Creation for the 21st Century.” The hearing is timely because major aspects of music copyright law are outdated, unfairly depriving some copyright owners of financial rewards for their creative efforts.

The Senate Judiciary Committee should seize the opportunity to update music copyright law and finally provide protections that have long been missing. It should adopt legislation just like the Music Modernization Act (H.R.5447) that passed unanimously in the U.S. House of Representatives last month. H.R.5447 would improve the ability of recording artists, producers, and songwriters to exercise their rights in copyrighted music. For copyright owners of older sound recordings, the bill would also recognize their right to receive royalties when their recordings are publicly performed via digital audio transmission. 

Music copyright is grounded in the U.S. Constitution. The Article I, Section 8, Clause 8 “Copyright Clause” confers on Congress the power “to promote the Progress of Science and Useful arts, by securing, for limited Times, to Authors and Inventors, the exclusive Right to their respective Writings and Discoveries.” The Founding Fathers regarded copyright as a unique private property right, rooted in an author’s natural right to enjoy the fruits of his or her creative labor. Federal copyright protections in music help ensure that copyright holders, including music artists, enjoy exclusive rights to the potential proceeds from their creative labors.

Copyright protections provide critical economic incentive for the work and expense of creating new works, including music compositions and sound recordings. Indeed, sound recordings and musical compositions are extraordinary sources of value. Retail revenues from recorded music reportedly totaled $8.7 billion in 2017. According to a report by the Recording Industry Association of America: “Streaming music platforms accounted for almost 2/3rd of total U.S. music industry revenues in 2017, and contributed nearly all of the growth.” 

However, many copyright law provisions that touch on music compositions and sound recordings need to be brought up to speed with changes caused by digital technologies and the Internet. H.R.5447 would update music copyright law by: (1) establishing a streamlined process for producers, mixers, and sound engineers to directly receive royalty payments through an entity called SoundExchange; (2) enabling more timely and accurate payment of “mechanical license” royalties to songwriters when their compositions are publicly performed via digital audio transmission and also providing blanket licenses for digital streaming services; and (3) securing to copyright holders of sound recordings made before 1972 federal copyright protections for public performances of their recordings via digital audio transmission.

The need to secure copyright protections for pre-72 sound recordings deserves special emphasis. Without explanation, federal copyright law fails to secure public performance royalty rights in sound recordings made before February 15, 1972, in the same manner it secures such rights in later recordings. Digital music services, including Sirius XM and Pandora, have publicly performed pre-72 sound recordings – but without having to pay royalties to copyright holders like they routinely pay for post-72 sound recordings. 

There is no reason for denying public performance royalty rights to copyright owners of pre-72 sound recordings. The growing importance of digital streaming to copyright owners makes the loss of financial returns for pre-72 sound recordings all the more unjust.  

Recognizing federal copyright law’s unfair treatment of pre-72 recordings, a 2015 report by the U.S. Copyright Office concluded: “pre-1972 recordings should be brought under the protection of federal copyright law.” As the Copyright Office explained, federal recognition of public performance copyright protections in pre-72 sound recordings “would serve the interests of licensing parity by eliminating… market distortion.” 

If it becomes law, H.R.5447would finally provide equal protection for pre-72 sound recordings. Going forward, copyright owners of pre-72 sound recordings would receive royalties for public performances of sound recordings via digital audio transmissions. Those royalties would be based on negotiations with digital music services or – absent agreement – on rates established by the Copyright Royalty Board pursuant to its “willing buyer/willing seller” standard that seeks to approximate market prices.  

Further, H.R.5447 would clear up uncertainties tied to state copyright laws. Absence of federal protections for pre-72 sound recordings led to multiple lawsuits against digital music services based on state copyright laws. In short, the bill would preempt all state law claims against digital music service providers that pay royalties for all public performances of pre-72 sound recordings taking place during the last three years. 

On May 10, Senator Orin Hatch introduced the similarly-titled Music Modernization Act (S.2823). Reportedly, S.2823 mirrors the music copyright reform bill passed by the House. Consistent with the Constitution’s charge “to promote the Progress of Science and Useful arts” by securing the exclusive rights of authors – including music artists – the Senate Judiciary Committee should pass H.R.5447 or companion legislation like S.2823.

U.S. House Votes Unanimously to Modernize Music Copyrights

On April 26 – World IP Day – the U.S. House of Representatives passed the Music Modernization Act (H.R. 5547) by a 415-0 vote. This welcome news follows closely on the unanimous vote of approval by the House Judiciary Committee on April 11.

FSF President Randolph May and I emphasized the merits of H.R. 5547 in our April 21 op-ed published at The Hill: "World IP Day – An Opportune Time to Modernize Music Copyright Protections." In short, the bill includes important updates to federal copyright law that would better secure copyright protections and royalty payments for recording artists, songwriters, and other music professionals. If passed by the Senate and signed into law, theMusic Modernization Act would: (1) secure to copyright holders of sound recordings made before 1972 federal copyright protections for public performances of their recordings via digital audio transmission; (2) establish a streamlined process for producers, mixers, and sound engineers to directly receive royalty payments via SoundExchange; and (3) enable more timely and accurate payment of songwriter "mechanical license" royalties and also provide blanket licenses for digital streaming services. 

For more on the Music Modernization Act, read our World IP Day op-ed in The Hill. Prior blog posts also analyze music copyright reforms from previous bills that have since been combined in H.R. 5547.  

House Committee Advancing Bill to Modernize Music Copyright

Our music copyright laws are outdated. But a music copyright omnibus bill introduced by the House Judiciary Committee, if adopted, would bring about several needed updates to reflect realities of the Digital Age. On April 11 the House Judiciary Committee is scheduled to mark up a new version of the Music Modernization Act. The core components of the bill have a wide base of support and a prompt vote should be a top priority of the House in the 115th Congress.

The new Music Modernization Act incorporates at least three bills previously introduced in Congress. My January 16 blog post, “Congress Should Advance Consensus Music Copyright Reforms in 2018,” provided a brief rundown for each of those proposed music copyright reforms: (1) the CLASSICS Act; (2) the AMP Act; and (3) an earlier version of the Music Modernization Act (MMA).

The CLASSICS Act would provide copyright holders of sound recordings made prior to 1972 with federal copyright protections for public performances of those recordings via digital audio transmission. This means copyright holders of pre-72 recordings would be able to receive royalties for such performances based on rates set by the Copyright Royalty Board pursuant to its “willing buyer/willing seller,” which seeks to “most clearly represent the rates and terms that would have been negotiated in the marketplace” among willing parties. For more on the CLASSICS Act, see my July 2017 blog post “Copyright Bill Would End Unequal, Inequitable Treatment of Pre-72 Sound Recordings.” 

The AMP Act would set up a process for producers, mixers, and sound engineers to directly receive royalty payments via a collective entity, SoundExchange. This would not require such royalty payments, but facilitate them when creative artists and other copyright holders agree to subdivide royalties with producers, mixers, and engineers pursuant to negotiated contract.

The MMA, as previously introduced, would enable more timely and accurate payment of songwriter “mechanical license” royalties and also streamline blanket licenses for digital streaming services. It would accomplish this by establishing a single licensing entity that would ensure that digital music services have correct information. Additionally, the bill would mechanical licensing royalties for music compositions to the “willing buyer/willing seller” standard. My blog post from January 26 called attention to the filing of the Senate version of the MMA.

Rolling all three bills into a single new Music Modernization Act makes good sense. Each component of the music copyright omnibus bill would update and improve the state of music copyright protections in accord with Congress’s obligation under the U.S. Constitution’s Article I, Section 8 Copyright Clause to secure exclusive rights in creative works. Further, all three major reform components command a broad consensus of support. And a unified bill for modernizing music copyright protections may enhance the attractiveness of a fast-track vote by the House.

Passage of the new Music Modernization Act would count as signal achievement for the 115th Congress. 

The CLASSICS Act Would Update Pre-1972 Law

Yesterday, Senators Chris Coons (D-DE) and John Kennedy (R-LA) introduced the Compensating Legacy Artists for their Songs, Service, & Important Contributions to Society Act, or CLASSICS Act. This bipartisan legislation would require digital services to pay copyright holders and artists for the use of sound recordings made before February 15, 1972. 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-1972 sound recordings that others enjoy for later recordings. 

In this July 2017 blog, FSF Senior Fellow Seth Cooper discusses the House version of this bill, also called the CLASSICS Act, and how it would protect the rights of copyright holders of pre-1972 sound recordings.

A Day to Remember Our Constitution's Protections for IP Rights

On Constitution Day – September 17 – we celebrate the framers signing of America’s written fundamental law. Among its sections and clauses, the Constitution’s provision for intellectual property (IP) rights deserves renewed appreciation by the public and support by Congress. Stronger security for IP rights enhances our economic climate and fulfills an important constitutional obligation.

Copyrighted works and patented inventions increasingly are vital to our nation’s prosperity in today’s digital Internet-connected global economy. A report by the U.S. Department of Commerce found that value added to our economy by copyright- and patent-intensive industries totaled approximately $1.8 trillion in 2014, amounting to about 10.6% of the U.S. gross domestic product. Also, jobs supplied by copyright-intensive industries totaled 5.6 million in 2014, while patent-intensive industries provided 3.9 million jobs.

The vibrant growth in IP’s value to our economy has been driven by digital technology and Internet connectivity. However, modern means of production and distribution also render IP vulnerable to online theft and infringement. Although often overlooked, the Constitution entrusts Congress with the responsibility to meet such challenges and ensure the security of copyrights and patent rights. The conceptual and historical backdrop of that responsibility are examined in the book, The Constitutional Foundations of Intellectual Property: A Natural Rights Perspective, that I co-authored with Free State Foundation President Randolph May.

Logically, IP rights reflect the natural rights principle that a person has a right to the proceeds of his or her own labors. Those proceeds are a person’s private property, deserving protection by equal laws. Historically, this natural rights and property rights understanding of copyrights and patents prevailed in the newly independent American states. By the time the framers met for the Philadelphia Constitutional Convention in 1787, twelve of the thirteen former colonies had adopted state copyright laws, and a few provided patent protections for inventors.

James Madison concluded that the lack of uniformity of among state copyright laws was a vice that needed to be remedied. Other framers in Philadelphia agreed. The Constitution’s Article I, Section 8, Clause 8 — the intellectual property (IP) clause — grants Congress the power “to promote the Progress of Science and Useful arts, by securing, for limited Times, to Authors and Inventors, the exclusive Right to their respective Writings and Discoveries.” As Madison observed in Federalist No. 43, conferring on Congress the power to protect copyrights and patent rights would be highly useful to individual authors and inventors and also serve the public good.

The First Congress to convene under the Constitution promptly exercised its constitutional power to secure copyrights and patent rights. In addition to establishing a system of taxes and revenues, setting up the federal judiciary, selecting the permanent capital site, and drafting the Bill of Rights, the First Congress passed the Copyright and Patent Acts of 1790. Both acts were signed by President George Washington. Those landmark laws set IP on a free market footing by expressly recognizing authors’ and inventors’ exclusive rights to contract for the sale or licensed use of their writings and inventions. The Copyright and Patent Acts of 1790 also provided civil rights of action for creators and inventors whose protected works or inventions were infringed.

In the nearly two hundred fifty years that have followed, Congress has intermittently exercised its constitutional power to further secure IP rights. Drawing upon natural rights and property rights principles, statesmen such as Daniel Webster and Henry Clay helped pass the first substantial revisions of the Copyright and Patent Acts in the 1830s. Also cognizant of natural rights and property rights principles, in 1891 the Centennial Congress secured copyright protection for foreign authors in order to ensure American authors were treated equitably overseas. In 1897, Congress made willful infringement of certain copyrighted works a crime subject to federal prosecution. And through subsequent legislation by Congress, the scope of copyright protections has expanded beyond books and engravings to include unauthorized reproductions or public performances of motion pictures and digital sound recordings. Likewise, the scope of patent protections now includes inventive designs as well as manufacturing and other production processes that embody the latest digital technologies.

Bearing those constitutional, historical, and economic considerations in mind, there is work ahead for Congress that is essential to securing American IP rights in the Digital Age:

• Inexplicably, current federal copyright law does not provide public performance copyright protections in sound recordings made before 1972. Congress should pass legislation guaranteeing that copyright holders have the same right to receive royalty payments for public performances of pre-72 sound recordings as for performances of later recordings.

• The effectiveness of Digital Millennium Copyright Act of 1998’s “notice and takedown” process for removing infringing music and other content from the Internet has been undermined by two decades of technological advances and changes in user habits. To better protect the value of creative artists’ copyrighted content from massive online infringement activity, Congress should revise and update the DMCA.

• The Copyright Office’s capabilities are outdated. Only limited online searching for copyright registration records is available and online searching for recorded copyright title transfer is unavailable. Congress should pass legislation to modernize and restructure the Copyright Office. It should give the Register of Copyrights the independence necessary to make technology upgrades and to establish a comprehensive searchable online database of copyright records. Upgrading the Office’s capabilities will reduce parties’ compliance costs and enhance the economic value of copyrighted works.

• Steep losses to the U.S. economy caused by overseas piracy of IP need to be curtailed. A 2017 report by the bipartisan IP Commission calculated that counterfeit goods, pirated software, and trade secret theft cost our economy between $225 and $600 billion annually. Congress should urge the Trump Administration to include strong IP rights enforcement provisions in foreign trade negotiations, and proposed treaties that contain such provisions should be ratified and supported by implementing legislation.

As we reflect on our Constitution’s origin as well as its guarantees for representative government and individual freedoms, we should not forget the wisdom of the framers in including the protection of copyrights and patent rights in our nation’s fundamental law. Congress should vigorously pursue its constitutional responsibility to secure IP rights and put our nation’s economy on the strongest possible footing for the Digital Age.

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.