In a presentation I made on July 2, 1998 at the "MP3 Summit" meeting in San Diego, California, I provided a brief outline of forms of copyright protection that Congress provided the music industry when it enacted the Digital Performance Rights in Sound Recordings Act. That outline is summarized in the Table set forth below.

    The Table describes ten different potential licensing questions facing webcasters as they begin making plans to effect digital audio transmissions containing music. Of these ten circumstances, the one indicated in that bottom right hand corner -- what I'll call Question #10 -- represents the sole difference of opinion between Steve and me (at least currently, as a court decision, or Reason itself, may prevail on one of us to reconsider).

    Question #10 is this: When do webcasters require a license from record companies to engage in non-interactive, non-subscription digital audio transmissions (that is, webcasts that are akin to radio broadcasts) of sound recordings?

    Steve would have you believe that a license (i.e., permission) is required from the owner of the sound recording and that the granting of such license is completely voluntary -- that is, a license that may be issued on any negotiated terms and not subject to any statutory or compulsory provision that would require record companies to issue such a license at any specified rate, or even at all. By contrast, the right answer, I submit, is simply this: no license from the sound recording owner is required to effect such transmissions.

    In fact, shortly before I submitted this paper for publication on the web, I learned that the RIAA has actually been lobbying Congress to add a provision to the Copyright Act that would make non-interactive, non-subscription transmissions subject to compulsory licensing, thereby admitting that such transmissions under the DPRA do not, in fact, require a license. 

    The question, and its answer, is indicated in the bottom right corner of the Table below. It is important to note, however -- if for no other reason than to prove that I'm not on the fringe, a nut, or worse, a defender of record pirates -- that, with respect to all nine other issues on the Table, Steve and I are either in complete agreement (i.e., that a license is required from the copyright owner), or Steve, perhaps because of his organization's more focused interests, has expressed no opinion on the subject.

    Nevertheless, because Steve has suggested that the arguments in my original article failed "to account for principles of fundamental fairness and the policies underlying the DPRA," I now find it necessary to present Question #10 in the full glory of its context -- specifically, the context presented by all ten licensing questions concerning digital audio transmissions, and how Congress dealt with each one of them.

    With this context in mind, I hope my readers will agree that Section 114(d)(1), which was added to the Copyright Act by the DPRA, does, in fact, provide an exemption for non-interactive, non-subscription webcasts. I also hope that my readers will forgive me for the length of this article, but accusations of unfairness must be taken seriously, particularly by authors of books whose royalty income is expected to support them in their old age. 

    Before addressing the questions presented in the Table, it should be helpful to first review several important concepts, the first of which involves the difference between (a) a song and (b) a sound recording of a song.

    Anyone seeking to obtain a license (i.e., permission) to use a recording of a song must first understand that his or her use will normally involve not one, but two copyrights: (a) the copyright in the sound recording and (b) the copyright in the underlying song, or musical work. The copyright in a sound recording, a particular a series of sounds, is completely separate from the copyright in the underlying song featured in the sound recording.

    For example, there exists a valid copyright in the song I've Got You Under My Skin by Cole Porter and the copyright is owned by Warner/Chappell Music, Inc., a music publishing company. At the same time, several records of I've Got You Under My Skin have been recorded by numerous recording artists over the years. A completely separate copyright exists for each particular recording -- the sequence of sounds that make up the performance of the song by a singer and orchestra. These recordings are owned by the respective record companies that commissioned their creation. For example, the 1956 version of Frank Sinatra's recording of I've Got You Under My Skin is owned by Capitol Records.

    Thus, if you wished to obtain permission to use Sinatra's 1956 recording of I've Got You Under My Skin, you would require the permission of Capitol to use the recording and the permission of Warner/Chappell to use the underlying song. You could not use the recording without permission from both companies. If you wished to make a new recording of the song I've Got You Under My Skin, you would require permission from Warner/Chappell, but you would not require permission from Capitol Records or any other record company who happens to own a recording of the song. 

    The second important concept underlying this debate involves the difference between what is known as the reproduction right and the public performance right. The copyright law provides an owner of copyright several exclusive rights, including the exclusive right "to reproduce the work" (e.g., to make physical copies, such as CDs and sheet music) and "to publicly perform" the work (e.g., rendering a live performance of a song in a nightclub, or playing a recording of a song on the radio).

    This exclusive right to reproduce copyrighted works applies to both musical works (e.g., the Cole Porter song) and sound recordings (e.g., the particular recording of it owned by Capitol Records). By contrast, however, the right of public performance under the U.S. copyright law only applies to songs, not to sound recordings. The owners of copyrights in songs have always had a general right of public performance in their musical works. As a result, the copyright owner of the song I've Got You Under My Skin (in this case, Warner/Chappel, through its performance rights representative, ASCAP) will collect money from radio broadcasts of Sinatra's 1956 recording.

    By contrast, the record company (in this example, Capitol Records) is not entitled to collect money from such radio broadcasts, because, at least in the U.S., owners of sound recordings do not have a general public performance right. (Why they don't have such a right, and whether they should, is beyond the scope of this article; however, Steve may be surprised to learn that I personally believe that they should. Our difference of opinion, however, concerns not what the law should be, but what it is). 

    Steve, in his July 1 letter, faulted me for stating that there's no "general" exclusive right granted for public performances of sound recordings, saying my statement is "belied by § 106(6), which unequivocally grants sound recording copyright owners the exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." I'll say it again -- this time with feeling: there is no general public performance right for sound recordings.

    Section 106(4) provides a general public performance right for the following specific list of copyrightable works: "literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works." Sound recordings are simply not on the list. (Again, whether they should be on the list, is another story). If they were, the record companies would be able to charge fees for radio broadcasts of their recordings.

    As Steve mentioned, the DPRA provided, with the addition of a new Section 106(6), a public performance right in sound recordings, but only when such performance is "by means of a digital audio transmission." This new limited right of public performance does not apply at all to analog transmissions and was severely limited by the exemptions and other conditions set forth in Section 114 of the Copyright Act, entitled, "Scope of Exclusive rights in Sound Recordings," which I'll turn to below. 

    The final concepts underlying this debate concerns knowing who the various music industry players are and who they represent While this may be second nature to music industry veterans, a webcaster who earnestly tries to discern who it is they have to pay, and what it is they have to pay for, can find this to be a most intimidating endeavor. With apologies for the entertainment law buffs for the following superfluity and to foreign nationals for omitting all but the relevant U.S. industry players in our wonderfully complex industry, I offer the following simplified definitions:

Record Company. Record companies are entities who enter into contractual relationships with recording artists for the financing, promotion, and distribution of sound and video recordings featuring artists' performances. In return, the artist is paid a royalty, which is typically in the form of some percentage of the revenues earned by the record company in connection with the various kinds of commercial exploitation of the artist's recorded performances.

Music Publisher. Music publishers are entities who enter into contractual relationships with songwriters, often the same person as the recording artist, for the commercial exploitation of the songs written by the songwriters. Publishers may license the song for use in recordings made and distributed by record companies, for use in printed editions, such as sheet music and songbooks, and for live and recorded performances of the songs in nightclubs, restaurants, hotels and similar establishments and on radio, television and other kinds of broadcasts.

ASCAP/BMI/SESAC. These organizations, commonly known as "performance rights societies," represent music publishers and songwriters solely with respect to the performances of the songs. Music publishers and songwriters use these organizations to collect money from nightclubs, restaurants, hotels, and other venues, and radio and televisions stations for the public performance of all the songs they represent in their respective catalogs. They may charge the venues an annual flat fee and charge the radio and television stations a percentage of advertising revenues in exchange for a "blanket license" to use all of the songs the particular performance rights society controls or represents. After collecting the money on a blanket basis, each organization then takes surveys of what songs are played during the year; they then allocate the total collected revenue among the particular songs performed and pay each respective music songwriter and corresponding music publisher an amount representing what the song earned in performance royalties during the year. The performance rights societies only deal with the songs, not the recordings of songs, and as previously mentioned, only deal with performances of songs, not with the making or distribution of records or other copies containing songs.

Harry Fox Agency. This is an organization that specializes in issuing licenses to record companies for the reproduction of songs in CDs and other kinds of records. The fees they charge for these uses is limited by the "statutory rate" specified in the U.S. Copyright Act. The statutory rate, as of January 1998, is 7.1 cents, or 1.35 cents per minute of playing time or fraction thereof, whichever amount is greater. (Note, this is the rate announced on February 13, 1998 with respect to the making and distribution of physical phonorecords; the rate for digital phonorecord deliveries had not been announced at the time this article was published. However, for purposes of this article, it is assumed that the rates for each are the same). After retaining a small percentage for its services, the Harry Fox Agency pays these fees to music publishers (which then pays typically half of that to the songwriter). Some music publishers issue their own mechanical licenses directly to record companies, but many find the economies of scale offered by the Harry Fox Agency to be worth the services fee charged. Though the Harry Fox Agency performs other kinds of licensing services for music publishers, they do not license performance of songs or engage in any form of licensing services for record companies.

Recording Industry Association of America. The RIAA, headquartered in Washington, D.C., is a trade association which represents record companies. The RIAA's stated mission is to promote the mutual interests of record companies, as well as the betterment of the industry overall through government relations, intellectual property protection, and international activities. The association also operates an aggressive anti-piracy unit, conducts extensive consumer and industry research, and provides ongoing communications support.
 

    With these important concepts in mind, we can now turn to answering the ten basic licensing questions raised by the digital transmission of recorded music.

 
 

Type of  Digital Audio Transmission	Musical Work (Music Publ.)	Sound Recording (Record Cos.)
DPD	1. Statutory ($.071) [ASCAP/BMI?]	2. Voluntary
Non-DPD
Interactive	3. ASCAP/BMI [Compulsory ($.071)?]	4. Voluntary
Non-interactive
Subscription  -- non-compliant  -- compliant	5. ASCAP/BMI 7. ASCAP/BMI	6. Voluntary 8. Compulsory
Non-subscription	9. ASCAP/BMI	10. No License [Compulsory?]

 
 

Before exploring these questions, one at a time, we will review two key definitions: that of (1) "digital audio transmission" and (2) "digital phonorecord delivery." 

    First, as Steve reminds us, the DPRA provided to owners of sound recordings an exclusive right to publicly perform them by digital audio transmission. Essentially, to qualify for the exclusive right, the transmission must be (a) in digital form, (b) audio-only, and (c) a transmission. A "digital transmission" is a transmission that is in a digital or other non-analog format. Thus, AM and FM broadcasts in analog form, are not covered. Next, it must be audio-only, not audiovisual, because audiovisual works already have a public performance right under Section 106(4). As a result, audiovisual works, such as music videos, are not subject to any of the limitations to which Section 106(6) is subject, even if only the soundtrack of the video is transmitted. Finally, it must be a transmission. To "transmit" a work is to communicate it by any process or device whereby sounds or images are received beyond the place from which they are sent. Thus, rendering a live performance, even with the use of a megaphone or loudspeakers, does not itself involve a transmission. 

    Second, there are two basic kinds of digital audio transmissions: (1) those that result in a specifically identifiable reproduction of a phonorecord by or for any transmission recipient and (2) those that don't. Transmissions that do are called "digital phonorecord deliveries." An example of a digital phonorecord delivery would be the commercial sale from a web site of an "MP3 file" -- that is, a sound recording saved as computer data file using the compression techniques of an MPEG layer-3 software encoder -- downloaded from a web site directly over the Internet to the home computer of a consumer.

    As mentioned above (subject to the assumption made above), the statutory rate, as of January 1998, is 7.1 cents, or 1.35 cents per minute of playing time. In other words, if you want to effect digital phonorecord deliveries of other peoples songs, you may obtain a license at the statutory rate. The license which authorizes these transmissions is called a "mechanical license," and the organization in the United States that issues most of them is the Harry Fox Agency. The nice thing about these licenses is that you know you can always get it, and the statutory rate serves as a ceiling to what the music publishers or the Harry Fox Agency can charge you. In addition, the Harry Fox Agency has recently reached an agreement with its international counterparts that makes it clear that mechanical licenses will be collected from the source of the transmission -- that is, the web site offering the digital phonorecord deliveries -- regardless of where in the world the transmission recipient receives his or her copy of the recording. Mechanical licenses are easy to get, and God bless them.

    Performance Right. But there is a little controversy brewing here. The performance rights societies (e.g., ASCAP, BMI, SESAC) appear to be taking the position that a performance license is required to effect a digital phonorecord delivery, even though a statutory mechanical reproduction license has already been obtained for the same delivery. In their view, all transmissions of songs constitute performances of songs, whether or not they result in a specifically identifiable phonorecord made by or for the transmission recipient, and therefore, they say, you must also pay a public performance fee for these transmissions.

    The performance rights societies have not yet disclosed how much they intend to charge for these transmissions. They are likely to seek something less than what they charge for transmissions that do not constitute digital phonorecord deliveries, such as "streaming" audio transmissions (see below).

    A webcaster may legitimately ask: if I am paying 7.1 cents for the digital phonorecord delivery, why must I also pay for its transmission, particularly if the phonorecord is not truly performed or in any way rendered during the transmission? Isn't this a form of "double-dipping" by the music industry?

    I have yet to take a position on this particular controversy, but, at the risk of being branded a pirate by the music industry and a music industry lackey by the web community, I will venture to briefly point out various positions that have been, or may be, made to support each side in this debate.

    For example, the performance rights societies could point to the definition of "digital phonorecord delivery" to support its position. The complete definition of that term, which was added to the Copyright Act by the DPRA, is as follows:

    Quite possibly, Congress recognized that some digital phonorecord deliveries may be performed or "streamed" for listening by the user while it is being downloaded; hence, the italicized language may have been needed to make certain that a digital phonorecord delivery will still be deemed such, even if the digital transmission happens also to constitute a public performance.

    The performance rights societies could point to the definition of public performance:

    The problem with these arguments is that the above definition concerns not what a performance is, but what it means to perform a work publicly (as opposed to privately). Nevertheless, even if the transmission of a work is considered a public one, it may still not constitute a performance. According to the Copyright Act,

    This argument would be plausible but not for the definition of "sound recordings," which is defined in the Copyright Act as "works that result from the fixation of a series of sounds." Thus, by definition, a sound recording is a fixation of sounds, not a rendering of sounds. Arguably, then, by transmitting a sound recording, you are transmitting a fixation of sounds, not a performance or rendering of them.

    A better argument, from the performance rights societies perspective, would be to say that the downloading of a digital file is part of a process that results in a rendering or playing of the work at the recipient's end. Recall that to perform a work means to render or play the work, "either directly or by means of a device or process." Thus, arguably, the process of transmitting the bits constituting a digital sound recording file, the recipient's buffering those bits or saving them to his hard disk or other storage media, and his playing of the bits, either as the bits are being downloaded or later, even after the entire file has been saved to disk, constitutes a playing or rendering of the sound recording, "either directly or by means of a device or process."

    Because technology now permits the playing of the bits either as the bits are being downloaded or after all the bits in the file have been received, the distinction between a digital phonorecord delivery (DPD) and a non-DPD (i.e., a purely "streaming" digital audio transmission) is being blurred. The performance rights societies may argue that all of these transmissions should be considered performances, merely because it is too impractical, on a case-by-case basis, to make a distinction between them.

    In addition, the performance rights societies have argued that a digital phonorecord delivery provides an added value to the consumer -- that is, with the advent of digital deliveries, the consumer no longer has to schlep down to a record store to buy a CD; he or she can just order it online and receive it in minutes. Consequently, that added value should be paid for. This argument, however, was first made before the success of companies like Amazon.com, from whom you can now order a CD and have it sent to you by overnight courier. What practical difference does it make whether the tracks constituting a record album come to you overnight or several minutes or hours after you have requested them to be downloaded?

    Moreover, it may be reasonable to assume that if Congress made digital phonorecord deliveries subject to a compulsory license under Section 115, and set the fee for such licenses at the statutory rate, then, arguably, it should be unnecessary for anyone to pay more than the statutory rate to effect the delivery, "regardless of whether the digital transmission is also a public performance of . . . any musical work embodied therein." Again, the quoted language is from the Act's definition of digital phonorecord delivery, and one could infer from it that Congress wanted to make certain that a digital download of a sound recording will be deemed a digital phonorecord delivery, subject to the compulsory license, with no one having to pay more than the statutory rate, even if the digital transmission happens also to constitute a public performance.

    If the performance rights societies are not successful in persuading the industry, or a court, that all digital phonorecord deliveries constitute performances, one might think that the practical result will be this: if the statutory rate for a mechanical reproduction license is paid with respect to a transmission, then, a performance royalty is not due for the same transmission. Payment of the statutory fee for a mechanical license is intended to cover the sale of a copy (i.e., a physical phonorecord or a digital phonorecord delivery) and, theoretically, all private performances of the song arising from the use of such copy -- and this would include the first performance or rendering that occurs concurrently with the transmission of the digital phonorecord delivery or sometime after the digital phonorecord delivery is completed.

    This, however, is complicated by the following problem: As will be discussed below in connection with Question #3, the Harry Fox Agency, on behalf of the music publishers which they represent, appear to be taking the position that a digital audio transmission of a musical work that is effected by means of an "interactive service" (discussed below) constitutes a digital phonorecord delivery, even though there is no assurance that the recipient will end up with a reusable copy of the recording. As such, the transmission will require payment of the statutory compulsory license fee, currently 7.1 cents. As pointed out below, no one disputes that a transmission that is a mere "streaming" of a recording is a public performance of the song underlying the recording, entitling the performance rights society to legitimately collect performance royalties for them. But, here again, the industry may be open to the accusation of "double-dipping."

    It would seem that this sticky problem is something that should be worked out between the performance rights societies, which are largely controlled by songwriters and music publishers and the Harry Fox Agency (or directly by their music publisher members and the songwriters who they represent). The problem is that neither group is likely to welcome the prospect of giving up their side of the revenues to avoid the perceived "double-dipping" problem.

    Be that as it may, other arguments, of varying degrees of persuasiveness, have been put forth by both proponents and detractors on this question, but I thought it wise to reserve my views on the subject until such time as I have formulated them.

    The reason for this is simple: digital phonorecord deliveries directly replace sales of records. Without such sales, the purpose of the copyright law will be defeated: Record companies would be unable to finance, promote and distribute new recordings, and artists would be unable earn royalties to support professional recording careers. As a result, there will be an economically insufficient supply of quality musical recordings for the buying public. It is the very purpose of the copyright law to ensure that artists and their record companies receive economic remuneration for their undertakings, so that an efficient supply of quality musical works and sound recordings will be produced and distributed to the listening public.

    This theme of the extent to which digital audio transmissions would replace the sale of records played an important role in the development of the DPRA and is an important concept in understanding the distinctions among the various kinds of transmissions identified in the DPRA discussed below. For example, there is a great distinction between what licenses are required for digital audio transmissions that constitute digital phonorecords and transmissions that do not. As we shall see, the law extends stronger and more flexible performance rights to the owners of sound recordings in instances where the digital audio transmission poses a greater risk of replacing a record sale. 

    Of transmissions that do not result in digital phonorecord deliveries, there are two basic types: transmissions that are part of an interactive service and those that are not.

    Under the U.S Copyright Act,

    Reproduction rights. Yet, another controversy! As mentioned above, the Harry Fox Agency, on behalf of its music publisher members, is taking the position that songs digitally streamed from interactive services constitute digital phonorecord deliveries, even if no digital copy is, or can be, made by or for the intended recipient of the transmission. Accordingly, interactive transmissions of purely streamed music would require payment of the statutory compulsory license fee of 7.1 cents each.

    As with the other potential "double-dipping" issue discussed in connection with the answer to Question #2 above, I have not formulated any definitive view on this subject, but the music publishers can take solace from a very specific provision that was in the DRPA and is now part of the compulsory license provision at Section 115(c)(3)(L):

    Nevertheless, the Harry Fox Agency has recognized that an interactive transmission of a song that is of a short duration and which does not result in a copy being made for the intended recipient, is not likely to have an effect on the sale of a record or a full digital phonorecord delivery of the song. Accordingly, the Harry Fox Agency will allow such interactive transmissions without requiring payment of the statutory fee if (a) no more than 30-seconds of the song is transmitted and (2) the transmission is effected by or with the permission of the owner of the sound recording embodying the song. Note, this does not allow anyone to make such 30-second transmissions, only the record company who owns the recording, or its licensees.

    As mentioned above, there are two kinds of digital audio transmissions that do not result in digital phonorecord deliveries: those that are part of an interactive service and those not part of an interactive service. Of those transmissions that are not part of an interactive service, there are two types: subscription transmissions and non-subscription transmissions.

    The former requires a license, in one form or another, and the latter does not require a license. Why? Returning to our recurrent theme, the distinction between subscription and non-subscription transmissions was made because it was felt that the risk of a music service which consumers pay for on a subscription basis poses a moderate to high risk of replacing the sales of records (either physical CDs or digital phonorecord deliveries), while those which are on a nonsubscription basis, like traditional, advertising supported radio broadcasts, and the like, pose only a low risk of replacing record sales.

    Here are the relevant definitions:

    I would have liked to report that the distinction between subscription and nonsubscription transmissions ends there, but it doesn't. Keeping in the theme of providing greater rights where there is a higher risk of replacing record sales, it was thought that some subscription transmissions are less likely to replace record sales than others. Accordingly, certain subscription transmissions would be treated like any interactive service, giving the record companies full flexibility to negotiate whatever license fees they like or refuse to license these forms of subscription transmissions. Other forms of subscription transmissions, those which pose a lower threat of replacing the sales of records, would fall within an area of the law which would allow transmitting organizations, like webcasters, to compel the record companies to grant a license and to pay a fee set not by the record companies, but by a federal arbitration panel.

    Thus, the DPRA established two types of subscription transmissions of sound recordings: (i) voluntary subscription transmissions and (ii) compulsory subscription transmissions. Both require licenses from the sound recording owners, typically record companies. However, the former may be licensed by the record companies on a voluntary basis, meaning the record companies can set any licensee fee they wish, or refuse to license these transmissions. With respect to compulsory subscription transmissions, the record companies can be compelled to grant licenses and the license fees are subject to a statutory fee, which will effectively serve as a maximum amount that will be charged for such licenses. Let's first review the licensing questions arising from voluntary subscription transmissions -- that is, those which are not subject to compulsory licensing.

    This is because, unlike with the general public performance rights which owners of songs have always enjoyed, owners of sound recordings do not have a general pubic performance right. The owners of sound recordings were only recently given a public performance right for digital audio transmissions of their recordings, and only after a period of prolonged negotiations which resulted in the limitations reflected in Section 114, including these fine distinctions between interactive and non-interactive services, subscription and non-subscription transmissions, and subscription transmissions that are subject to a compulsory license and those which are not. As we shall see, recognizing this licensing regime which Congress established is key to unlocking the answers to the questions raised by the recording industry with respect to non-subscription transmissions.

    To qualify for a compulsory license to make a subscription transmission, the following conditions must be met by the transmitting entity:

    The lower risk of these transmissions being used to replace record sales is reflected in the conditions. For example, the transmission cannot be part of an interactive service. If the consumer were permitted to click on an icon or web link (or issue a voice command) and receive a particular recording on demand, he could be prepared to record each transmission and use such recordings for future private performances, which are not subject to payment to the sound recording owners. Similarly, the transmitting entity must not publish any advance program schedule or make any prior announcement of the titles of the specific recordings to be transmitted. Again, having access to the playlist in advance would allow the consumer to cherry-pick which sound recordings he or she would like to record at home.

    Further, the transmission must not exceed the "sound recording performance complement." The sound recording performance complement, which is defined below, is designed to prevent a transmitter from obtaining a compulsory license at the preferred statutory rate for transmissions, such as an all Beatles channel or transmissions of all the songs from the same album.

    If the subscription transmission meets all of the above conditions, it will qualify for a compulsory license. In other words, the transmitting organization, under the law, can compel the record companies to provide it with a license to make these transmissions and the license fee will be limited to the fee established by law.

    Procedures relating to the compulsory license for subscription transmissions is set forth in Interim Regulations on Notice and Recordkeeping for Digital Subscription Transmissions Docket No. RM 96-3B located on the web at http://lcweb.loc.gov/copyright/fedreg/96-3b.html. Subscription transmission services will be required to provide detailed reports, and maintain extensive records, of their use of sound recordings under the license. The organizations participating in the U.S. Copyright Office's development of these procedures included, the Recording Industry Association of America (RIAA), and three digital music subscription services operating in the United States: DMX, Inc. (DMX); Muzak, Inc.; and Digital Cable Radio Associates/Music Choice (DCR). Further, after the license fees for these transmissions have been paid, the money collected will be allocated to the record companies and recording artists, subject to provisions set forth in the DRPA.

    It is worth noting, at this juncture, that if record companies should prevail in their argument that non-subscription transmissions are subject to full voluntary licenses, then the performance rights societies, and their music publisher and songwriter members, could suffer a significant reduction in performance royalty income, arising from the fewer number of web radio stations engaging in non-interactive, non-subscription web transmissions. It is not clear what effect making such transmissions subject to a compulsory license will have on music publishing income from such transmissions, but such possibility raises other considerations, discussed below.

    As we have seen, the DRPA established a continuum of rights, from those transmissions that are likely to replace the sale of records (or digital phonorecord deliveries) to those that are not likely to replace such sales (such, as radio broadcasts and radio-like webcasts). Those digital transmissions that were deemed to pose no more risk of replacing records than radio broadcasts were granted an exemption from the limited performance right granted under the new Section 106(6) of the Copyright Act. This exemption is set forth in Section 114(d) of the Copyright Act, which may be found on the web at, http://lcweb.loc.gov/copyright/title17/1-114.html. If the transmission fits within any of the categories of Section 114(d), it is considered "exempt," which means that no license is required from the owner of the sound recording to effect the transmission.

    The greater part of Section 114(d) is intended to make it clear that public performances of sound recordings over the radio continue to be free of any requirement of a license from the owners of the sound recordings, even though such performances are by means of digital audio transmissions, provided they are not part of an interactive service, and are made on a non-subscription basis.

    The part of Section 114(d) relevant to webcasters who wish to make non-interactive, non-subscription transmissions of sound recordings is as follows:

    When a web radio station webcasts a sound recording, the recording is sent bit-by-bit in something called a data stream, which consists of packets of data. Appended to these packets are "headers" which contain information, known as protocol information, which includes information about the intended destination of the data stream. It is analogous to sending a book one line at a time to a single addressee, but in different envelopes, with information indicating which line and page it is from, for purposes of later assembly. This data stream is sent over telephone lines to a device called a "router," and as the data stream passes through the router, the router looks at the destination address set forth in the protocol headers and sends or "routes" the stream on its way, through the best route available, to the destination address. The data stream may pass through anywhere from 2 to 10 or so routers in the course of its march to a destination, such as an Internet browser on a personal computer, where it is reassembled in the proper order for viewing or listening by the user.

    This all occurs simultaneously, and arguably without any form of "retransmission." However, let's assume the passing of the data stream from one router to the next constitutes a series of retransmissions. In the paragraph that preceded Steve's comment about 114(d)(1)(c)(i), Steve said the following:

    In other words, webcasts over the Internet on a subscription basis, according to Steve, necessarily involve the propagation of simultaneous transmissions. Of course, the only difference, under the law, between a subscription transmission and a non-subscription transmission concerns whether the recipient is paying for the transmission -- the difference has nothing to do with how they are transmitted or retransmitted. The unavoidable conclusion is that simultaneous transmissions incidental to non-interactive, non-subscription webcasts that are exempt under 114(d)(1)(A)(i) are exempt under 114(d)(1)(c)(i) (provided, of course, that "such incidental transmissions do not include any subscription transmission directly for reception by members of the public.")

    Accordingly, plain logic demands that non-interactive, nonsubscription webcasts are exempt under 114(d)(1)(A)(i) and any simultaneous transmissions incidental to them are also exempt under 114(d)(1)(C)(i).

    But we have more than logic to support this view; we have common sense and what appears to be the plain rationale behind the DPRA: namely, the notion that Congress was trying to provide a means of compensation to owners of sound recordings to the extent, and only to the extent, there is a high or moderate likelihood that record sales would be replaced.

    As we have seen above, the distinctions between analog audio transmissions and digital audio transmissions, between digital audio transmissions that constitute digital phonorecord deliveries and those that do not, between interactive and non-interactive services, between subscription and non-subscription transmissions, and between voluntary and compulsory subscription services, all point to a continuum aimed at finding a balance between maintaining the status quo with respect to broadcast and broadcast-like transmissions of sound recordings and protection against the loss of sales from transmissions that may tend to replace traditional record sales and sales of digital phonorecord deliveries.

    If non-interactive, non-subscription webcasts were intended to be subject to voluntary licensing (i.e., licensing which may be made at any price or no price within the complete discretion of the record company), then why would Congress have made certain kinds of subscription transmissions subject to compulsory licensing and left non-subscription transmissions subject to a full voluntary license by record companies? Hmmm? Would not Congress have not had even a greater reason to make non-subscription transmissions subject to compulsory licensing? Would Congress have given exemptions allowing wealthy owners of radio stations complete freedom to effect transmissions of their broadcasts over the Internet, but refuse to allow entrepreneurs with fewer resources conduct the same activity over the Internet on a level playing field with the broadcasters?

    Would ASCAP and BMI have allowed a substantial source of music publishing income, income which they are actively seeking from sites which webcasts popular recordings, just vanish? Could we not infer from ASCAP's and BMI's active licensing of web sites which webcast popular recordings that the music industry has already operating under the assumption that this activity was exempt under the DPRA?

    These are some of the questions that would have to be answered should the law be interpreted to not exempt non-interactive, non-subscription webcasts and the simultaneous transmissions incidental to them.

    Steve's argument that legislative history suggests another result is questionable at best. He suggested that earlier versions of the bill that became the DPRA contained an outright exemption for "a nonsubscription transmission" that was not "part of an interactive service," and said that before enactment that provision was replaced by a more refined Section 114(d)(1)(A). But, the final bill did maintain the outright exemption for non-subscription transmissions and the entire section providing the exemption continued to contain the condition that the exempt transmissions must not be "part of an interactive service." What the revision did was to clarify that retransmissions could not be used to circumvent the exemptions. That is, for example, you could not retransmit an exempt transmission as a subscription transmission and circumvent the requirement of obtaining a voluntary or compulsory license for the retransmission. 

    As I suggested above, to be consistent with the continuum established by Congress -- one that was intended to strike a balance between maintaining the status quo with respect to broadcast and broadcast-like transmissions of sound recordings, on the one hand, and the protection against the loss of sales from transmissions that may replace traditional record sales and sales of digital phonorecord deliveries, on the other -- non-interactive, non-subscription transmissions either would have been made exempt or would have been made subject to a compulsory license.

    Clearly, between these two possibilities, Congress chose to make these subscriptions exempt. Though there may be good reasons to require the licensing of these transmissions on a compulsory basis, there are as many good reasons for keeping them exempt.

    First, music publishers and songwriters have a direct interest in promoting as many non-interactive, non-subscription web radio stations as possible, allowing them to issue many more blanket licenses for the use of music on these sites. Presumably, Congress took into consideration the interests of the performance rights societies and their members when determining the kinds of transmissions which should be considered exempt.

    Second, under Section 114(d), broadcast radio stations who desire to webcast their on-the-air broadcasts of sound recordings over the Internet are exempt from licensing requirements. Why should webcasters who don't own radio stations be put at a competitive disadvantage to radio stations? Similarly, why should small Internet sites be put at a competitive disadvantage to large Internet sites? For example, large webcast companies could use their size and access to the capital to purchase FCC licensed radio stations in order to webcast sound recordings over the web without payment to record companies. It is not likely that Congress would have been willing accomplices to such inequities.

    Finally, assuming that all non-subscription transmissions (including broadcast transmissions) were subject to a compulsory license, a level playing field would only result if the compulsory license was as easy to obtain and administer as the performance licenses that are offered by ASCAP or BMI. If, on the other hand, anything akin to the requirements of the compulsory license for subscription transmissions is instituted for non-subscription transmissions -- for "Interim Regulations on Notice and Recordkeeping for Digital Subscription Transmissions, Docket No. RM 96-3B, see http://lcweb.loc.gov/copyright/fedreg/96-3b.html -- only large, well financed web sites will, as a practical matter, have access to sound recordings for non-subscription transmissions Again, it is not likely that Congress would condone such inequities.

    Of course, all of these potential inequities could be avoided by granting a general public performance right in sound recordings.

    As mentioned at the outset of this article, it has come to my attention that the RIAA has actually been lobbying Congress to add a provision to the Copyright Act that would make non-interactive, non-subscription transmissions subject to compulsory licensing. If true, such efforts, if nothing else, would be an admission that non-interactive, non-subscription radio-like webcasts of sound recordings are, under the DPRA, exempt and therefore do not require a license. 

    In my original article, I suggested that transmitters who desire to make a copy of each recording to facilitate their exempt Internet broadcasts (e.g., copy to hard disk) should review the requirements of the ephemeral recording exemption under Section 112 of the Copyright Act:

    Steve also says that the fact that Congress, when it enacted DPRA, did not amend Section 112 at the same time, is "evidence that Congress intended not to extend the ephemeral recording exemption to digital audio transmissions." Of course, the same omission is also evidence that Congress thought the ephemeral recording exemption certainly did apply to webcasters and, therefore, felt no need to add anything to Section 112 to that effect. Moverover, why would Congress have created an exemption for non-subscription transmissions, but leave no practical way for anyone to use the exemption?

    Finally, Steve argues that "even if Section 112 is applicable to digital audio transmissions, the copies by this section are to be used only for transmissions within the transmitting organization's 'local service area.'" The legislative history of the Copyright Act defines the term "local service area" in only three contexts: in the case of a television broadcast station, in the case of a low power television station, and in the case of a radio broadcast station. It does not refer to Internet web sites, naturally, because they did not exist in 1976 when the Copyright Act was passed. But this does not mean that web sites are not covered; it only means that the extent of the local service area is not defined. Where they are defined, the legislative history seems to contemplate that transmissions may be sent by wire beyond the place where the primary broadcast transmission takes place. In the case of television stations, for example, the local service area comprises the area in which such station is entitled to insist upon its signal being transmitted by a cable system pursuant to the rules and regulations of the Federal Communications Commissions.

    Thus, the term "local service area" does not confine the transmission to a service area which is "local," but, in the case of television radio stations licensed by the FCC, such transmissions are confined to those areas permitted by the FCC. Since web stations are not so regulated, the local service area appears to be throughout the Internet, but perhaps not beyond, such as through radio broadcasts. The local services area of a short wave broadcast is worldwide, no different from a webcast, but I would be surprised to learn if broadcasters have been operating under the assumption that the ephemeral recording exemption applies only to small regional or "local" broadcasters.

    Granted, Section 112 only permits the making of "no more than one copy or phonorecord of a particular transmission program." This, according to Steve, makes is problematic for webcasters who wish to install copies on multiple servers. While this may be problematic for large, commercial webcasters, one copy would certainly be sufficient for the many thousands of small web sites who wish to take advantage of the exemption provided in Section 114(d)(1) and offer non-interactive, non-subscription transmissions.

    To repeat the suggestion I made in my original article, in availing themselves of the ephemeral recording exemption, webcasters would be advised to actually purchase the applicable CDs containing the transmitted recordings, maintain your sales receipt, and make your one permitted copy directly from the CD you purchased.

    As a footnote to this discussion, it is interesting to note that, as a result of recent negotiations between the RIAA and the National Association of Broadcasters (NAB), the Senate version of the proposed Digital Millennium Copyright Act of 1998 (Senate Bill 2037) amends Section 112 to provide a specific exemption for broadcast radio or television stations licensed by the FCC who provide "a performance of a sound recording in a digital format on a nonsubscription basis."  According to information obtained by the Digital Media Association (DIMA), the NAB initially proposed that the ephemeral recording exemption be revised to make it clear it applied to all lawful digital transmissions, but the RIAA had explicitly demanded that the exemption not apply to cable, satellite or Internet broadcasters.  Should the bill pass as so amended, the RIAA could take the position that by only exempting broadcast radio and television stations, the legislation should now be construed as not exempting webcasters.  Webcasters might then need to rely on the less specific exemption offered by the "fair use" provisions set forth in Section 107 of the Copyright Act. 

    More likely, however, is the legislative consideration of the rumored agreement between DIMA and the RIAA to provide for the compulsory licensing of ephemeral recordings.  Because such a provision would favor large organizations who are in a financial position to account and pay for such recordings, if such a provision were enacted, a large number of webcast organizations are likely to cease operations.  The immediate affect would be a smaller base of transmitting organizations who will require licenses from the performance license societies (e.g., ASCAP, BMI and SESAC) for the public performances of the songs embodied in the sound recordings that would otherwise have been transmitted.

    Before gently exiting this round of the debate, I feel compelled to respond to some personal remarks that Steve made in his letter of July 1. Steve accuses me of being disingenuous for writing "in the guise of academia" without pointing out the fact that GoodNoise has a "vested interest" in this debate. I am certain that readers of my article were not confused about my association with GoodNoise, as the article specifically displays that association clearly, with a link to the GoodNoise website, where my company's intentions to operate a web radio station is stated on the first page If a charge of disingenuousness is to be made, it may be appropriate to ask why an organization like the RIAA would publicly take the position the law does not exempt non-subscription transmissions while privately lobby to change the law to remove that exemption.

    In addition, it is certainly true that GoodNoise has a vested interest in this debate, but not for the reason proffered by Steve in his letter. GoodNoise is a record company which is primarily focused on selling recordings by digital phonorecord delivery; its intention to provide non-subscription webcasts is merely an incidental adjunct to its web site. More important, as an owner of sound recordings, it is certainly in GoodNoise's interest for there to be a full general performance right in sound recordings. Nevertheless, GoodNoise considers itself a responsible member of the web community, and when its management reviewed Steve's original letter to webcasters, they were astounded by what was either a gross misunderstanding of the law or a deliberate attempt to deceive the web community about the scope of the rights of owners of sound recordings. Accordingly, they asked me to publicly express my personal views on the subject, notwithstanding GoodNoise's vested interest in requiring licenses for non-subscription transmissions.

    With that out of the way, I now submit the above questions, and the answers I have been able to give, for public and professional consideration.

    Bob Kohn is Chairman of the Board of GoodNoise Corporation, The Internet Record Company, a leading provider of digital music recordings direct to consumers over the Internet. He is also co-author of the 1,500 page book, Kohn On Music Licensing, a practical guide to the business and legal aspects of the music industry, which he wrote with his father, Al Kohn, retired vice president of licensing for Warner Bros. Music. Prior to GoodNoise, Mr. Kohn served as chief legal counsel for Pretty Good Privacy, Inc., Borland International, Inc., and Ashton-Tate Corporation. Prior to Ashton-Tate, he was an attorney at the Beverly Hills law offices of Rudin & Richman, an entertainment law firm whose clients included Frank Sinatra, Liza Minelli, Cher, and Warner Bros. Music. He also served as Associate Editor of the Entertainment Law Reporter, for which he continues to serve as a member of its Advisory Board. After graduating from Loyola Law School in Los Angeles, Mr. Kohn became a member of the California Bar in 1981. He is Adjunct Professor of Law at Monterey College of Law, and lives with his family in Pebble Beach, California.

    Copyright © Bob Kohn 1998 All rights reserved. The foregoing is designed to provide accurate and authoritative information regarding the subject matter covered, but it is distributed with the understanding that neither the publisher nor its author is engaged in rendering legal or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. However, should you have any questions on any of these matters, feel free to post them in the conference area of http://www.kohnmusic.com. We look forward to helping everyone sort through these interesting legal issues.

    This article will be published in the August, 1998 edition of the Entertainment Law Reporter, 2118 Wilshire Boulevard #311, Santa Monica, California 90403-5784, 310-829-9335, sobel@entlawrptr.com.