Copyright bill hits Net broadcasters

An amendment to the Digital Millennium Copyright Act, passed today by the House, could spell big financial changes for Internet radio stations and other Webcasters.

The bill, which was passed by the Senate in May but must still get a presidential signature to become law, would implement treaties signed at the World Intellectual Property Organization's 1996 summit to increase protection for copyrighted music, software, and literature online.

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The amendment, which was created jointly by the Recording Industry Association of America (RIAA) and the Digital Media Association (DiMA) industry groups, as well as members of Congress, addresses licensing issues that up to now have been hotly debated by Webcasters and the record industry.

Under the amendment, Webcasters--including the relatively nascent Net radio stations that are not yet represented by the DiMA--will owe a license fee to the record companies. That fee would be in addition to what they already pay to license groups such as ASCAP and BMI, which represent composers, publishers, and authors.

The fee the Webcasters will pay once the law takes effect has not yet been determined. Interested parties will have six months to negotiate a fee; if no agreement is reached, an arbitration panel will be brought in, said Seth Greenstein, counsel for the DiMA.

The amendment relates to a contested section within the copyright law, the Digital Performance Right in Sound Recordings Act, which took effect in 1996. Varying interpretations of the act led to the debates that eventually resulted in the amendment.

Specifically, the act states that "the performance of a sound recording publicly by means of a digital audio transmission, other than as a part of an interactive service, is not an infringement...if the performance is part of a nonsubscription transmission."

Under the act, a "subscription" service is one for which users pay a fee, and an "interactive service" is one in which users can request specific songs and hear them on demand.

Internet radio stations such as Spinner and Imagine Radio do not fall under either category, and up until now have not paid a license fee to the record companies for the sound recording, based on their view of the act.

They have been paying fees to ASCAP and others, but only to cover the performance rights. Those fees cover the contributions by the composers and publishers--that is, the notes and lyrics in the songs. The RIAA is looking to collect a fee for the sound recording itself, the copyrights for which are held by the record companies. That fee is attached to the record companies' contributions to the final product--that is, the work put in by the artists, the recording itself, the manufacturing of CDs, and the like.

In June, Steven Marks, vice president and deputy general counsel of the RIAA, wrote a letter to Webcasters telling them they were required to pay the record companies a fee to cover the copyright for the sound recording.

"You may not realize it, but Webcasting implicates the rights of the record companies that create those recordings," he warned. "Specifically, the reproduction of sound recordings in your computer hardware and digital transmission of those sound recordings require a license from the respective sound recording owners."

The record industry, represented by the RIAA, claimed that Webcasters owed a so-called negotiated license fee to each individual record company, similar to what an interactive service would pay under the Digital Performance Right in Sound Recordings Act, said Brad Biddle, an attorney specializing in Net and e-commerce issues with Cooley Godward and an adjunct professor of cyberspace law at the California Western School of Law.

Subscription services pay what is known as a statutory license, Biddle said. That means there is a flat fee that the services pay, and a set of rules is in place to govern the services' use of the music. For example, during a three-hour period, a subscription broadcaster cannot play more than three different songs from a given CD or four songs from the same artist.

The amendment that passed today calls for Webcasters to be treated similarly to subscription services and abide by the same rules, though some additional rules also will apply, according to Marks of the RIAA.

For example, Webcasters will be obligated to publish on their sites the title of the song being played as well as the title of the CD, Marks said, noting that most of them already do so. Also, Webcasters must transmit technical protection measures implemented by the copyright holders, such as digital watermarks.

Subscription services currently pay 6.5 percent of their gross revenues for the statutory license; that is the number decided upon during arbitration, Greenstein said. He noted, however, that the recording industry is appealing that ruling. In an earlier appeal, the industry sought 41.5 percent.

Either way, having to pay a fee where there was none before could put a serious strain on Net broadcasters, especially start-up Net radio companies. The DiMA counts among its members technology firms such as a2b Music, Liquid Audio, and RealNetworks as well as music content site SonicNet and Webcaster Broadcast.com.

But Net radio companies such as Spinner and Imagine Radio were not in on the negotiations that led up to the compromise reached in the amendment.

Greenstein of the DiMA noted that the organization was being formed when these issues were raised, so it had to delay the process of inviting other groups to join. Smaller Net radio firms that stand to be affected tremendously by the bill were not represented directly within the DiMA. The organization is looking to expand its membership now that the negotiations with the RIAA and Congress are over.

Attorney Biddle said he was somewhat surprised by the nature of the compromise. He added that although both sides' arguments about whether or not a fee was appropriate had weaknesses, the law seemed to lean toward the DiMA.

"It's a victory for the RIAA that the Webcasters were willing to concede that the digital performance right does apply to them," Biddle noted. "I think the law weighed a little more heavily on the side of the Webcasters, but the RIAA leveraged its commercial position to gain the concession by the Webcasters."

In other words, record companies hold all the cards in that they ultimately control the copyrighted material the Webcasters need to conduct their business.

But Greenstein of the DiMA described the compromise as a "win-win."

"The artists and record companies get the compensation they deserve, and we get business certainty" as well as a statutory license at a "stable rate," payable to one location, he said.

That one location is likely to be the RIAA, which already collects the statutory license fees from subscription services.

As for the Net radio stations, reaction today was cautious.

"The best news is that the RIAA and DiMA seem to have resolved their differences and found common ground on these very complicated issues," said Brad Porteus, vice president of marketing and business development for Imagine Radio. "We need this type of collaboration for the entire Internet broadcasting industry to mature and keep moving forward.

"With any young and evolving industry, there are issues--often legal--that need to get sorted out, and I'm just happy that it looks like this is happening sooner rather than later," he added.

Josh Felser, president of Spinner, said his company's negotiations with individual record companies for various deals have been held up to a degree by the uncertainty about the license fees. Now that the bill has passed, he said he hopes the path for greater cooperation will be cleared.

Both declined to comment about the fees their companies could have to pay if the bill becomes law.