Net copyright rules stir firms

Proposed regulations designed to bring copyright law into line with the computer age are creating a stir among Internet broadcasters and network service providers who warn the rules would stop the budding market for Internet multimedia in its tracks.

The regulations, which the U.S. Copyright Office announced in early December, are designed to implement 1995 legislation making it easier to sell music over the Internet. The legislation, known as the Digital Performance Rights in Sound Recordings Act, extended so-called performance rights to the Internet. The rules have governed radio and television broadcasts for 25 years.

But in documents filed with the Copyright Office last week, at least two industry groups are warning that the regulations go well beyond Congress's intent in drafting the legislation by subjecting Web streamers and others involved in online broadcasting to significant new costs. They add that unless the regulations are revised, they will thwart an industry some analysts predict will be a significant part of the emerging electronic marketplace.

"The regulations effectively take sides in long-standing and heated debates over legal and technological policy that are better left for resolution by Congress than the Copyright Office..." states one document, filed Monday by the Coalition of Internet Webcasters, a trade group that represents Web streaming companies. The coalition, which formed in response to the proposed regulations, was joined by the United States Telephone Association, a 100-year-old trade group, which filed a separate petition on Tuesday.

Both groups accuse music industry groups of using a process for implementing the 1995 congressional act to push self-serving recommendations on hot-button issues that have bitterly divided industries for years. Both petitions accuse the Recording Industry Association of America, which represents record companies, and the National Music Publishers Association, which represents artists, of making an end run around Congress in order to forward their agendas.

At the heart of the skirmish is the issue of how to treat temporary computer files that networks make when one machine hands off content to another. The issue is by no means new and has been the subject of several lawsuits and a number of legislative proposals, including an international conference hosted last year by the World Intellectual Property Organization. Generally speaking, companies that create software, movies, and other content say there are instances where temporary files should be considered legal copies under copyright law, while companies that play a role in transmitting content feel strongly those files should not carry the designation.

At least two bills now before Congress attempt to clarify the status of temporary files stored in a computer's memory. Both the Digital Copyright Clarification and Technology Education Act--sponsored by Sen. John Ashcroft--and the Digital Era Copyright Enhancement Act--sponsored by Rep. Rick Boucher--would prevent temporary files from being designated copies under copyright law. (See related story)

But under the proposed regulations, "incidental" files made in the course of a Web broadcast could be construed as a recording, subjecting Web streamers and ISPs to royalty fees that they say would threaten their current business models.

According to Seth Greenstein, an attorney representing Webcasters AudioNet, RealNetworks, and Terraflex Data Systems, the regulations don't define exactly what constitutes an incidental copy. In their current form, "the regulations imply that the little bit of buffer memory [stored on an end-user's PC] could be deemed a record delivery and the potentially full royalty rate would also apply," said Greenstein, who is an attorney at Washington-based McDermott, Will & Emery.

The regulations could be disastrous for companies that play a hand in moving sound recordings or video that includes sound across the Internet, said Terrence Carroll, associate counsel for Creative Labs, which makes soundblaster cards and other PC peripherals.

"Under these regulations the [Webcasters] would owe a royalty, and yet they would have nothing to do with [the sale]. It would be the equivalent to a radio station having to pay the same royalty for broadcasting a record [that a store would pay] if they sold the record."

Attorneys from the Copyright Office and from one of the music content companies suggested it may be possible to work out the controversy. Cary Sherman, senior executive vice president and general counsel at the Recording Industry Association of America, said the petitions exaggerate the potential for harm and stressed that regulations in no way affect the legal status of temporary copies, known in copyright parlance as incidental digital phonorecord deliveries (DPDs).

"The regulations do not establish what is or is not an incidental DPD," said Sherman. "Only a court can do that." He added that the mention of incidental copies is designed only to allow the recording industry to be compensated for files that specifically have some sort of commercial value. For instance, he said, if a "pay-per-listen" model replaced the traditional sales of CDs and tapes, royalties on incidental DPDs would provide record companies with a means of being compensated.

David Carson, general counsel at the Copyright Office, said the regulations are not yet final. "We're going to have to consider what to do in light of these objections," he said. One possibility is to turn the matter over to an arbitration panel designated under copyright law to resolving disputes over royalty rates. Another possibility is that the Copyright Office will rewrite the regulations.

The recording industry's Sherman agreed that the regulations are not cast in stone and that the trade group would be open to changes. "If there is any uncertainty about the language, we'll obviously have to clarify so that [network companies] feel comfortable that this is not an attempt to establish what the law is," he said.