U.S. v. American Society of Composers, Authors & Publishers

Citation
United States v. American Soc'y of Composers, Authors, Publishers, 627 F.3d 64 (2d Cir. 2010) (full-text).

Factual Background
Music licensing organization, acting pursuant to previously-entered consent decree, applied for a judicial determination of reasonable blanket license fees for use of its media in the services provided by two internet companies. The Internet Companies seek separate blanket licenses to publicly perform the entirety of the American Society of Composers, Authors and Publishers (“ASCAP”) repertory for certain of their websites and services. A blanket license is a license that gives the licensee the right to perform all of the works in the repertory for a single stated fee that does not vary depending on how much music from the repertory the licensee actually uses. ASCAP licenses the non-dramatic, public performance rights in copyrighted musical works. More than 295,000 composers, songwriters, lyricists, and music publishers in the United States participate exclusively in licensing their music through ASCAP. ASCAP licenses approximately 45% of all of the musical works that are played on-line.

The Internet Companies perform music in myriad audio and audio-visual contexts. Yahoo! provides music content in various ways across its website. For example, a user can enjoy the specific song or music video he desires from an “on-demand” stream in Yahoo! Search, listen to a radio-style webcast in Yahoo! Music, view audio-visual clips from movies and television shows in Yahoo! Movies and Yahoo! TV, or upload and share his own videos using Yahoo! Video.FN1 However, only a small portion of the activity on Yahoo!'s website involves performances of musical works, and not all of the areas on Yahoo!'s website offer audio or audio-visual content.

RealNetworks performs music in audio and audio-visual contexts through a number of websites and subscription services. Like Yahoo!, these sites and services publicly perform musical works in numerous formats, including, inter alia, radio, television, movie, game, and music-video formats. Also like Yahoo!, only a portion of the content on RealNetworks' sites and services consist of performances of musical works.

In addition to performing music on websites and through services, the Internet Companies offer to users copies of recordings of musical works through download transmittals. A download is a transmission of an electronic file containing a digital copy of a musical work that is sent from an on-line server to a local hard drive. With a download, the song is not audible to the user during the transfer. Only after the file has been saved on the user's hard drive can he listen to the song by playing it using a software program on his local computer.

The Internet Companies primarily generate revenue from performances of musical works in two ways. On their websites, they make available, at no cost to users, performances of music, music videos, television programming, and the like that generate revenue from advertisements on the web page or in the audio or audio-visual player. The district court found that, in all of the forms of website advertising it considered, one principle is common: the larger the audience and the more times a site is visited, the greater the revenue generated. For example, advertisers typically pay for display advertising based on the number of “impressions,” or views, of the advertisement by users of the page on which an advertisement appears. The second primary way that the Internet Companies generate revenue from performing musical works is through subscription-based services.

Trial Court Proceedings
The trial court held that a download of a digital file containing a musical work does not constitute a public performance of that work. The trial court determined a method for calculating the fees for the blanket licenses payable to ASCAP for the Internet Companies' performances of musical works in the ASCAP repertory. In two separate opinions, the trial court issued Final Fee Determinations for Yahoo! and RealNetworks, respectively.

In its second opinion, the trial court arrived at a license fee formula that multiplied a royalty rate by the percentage of revenue attributable to the performance of music. The trial court applied a uniform royalty rate to the Internet Companies' varying music uses that did not fluctuate over the different types of performances on the Internet Companies' sites and services. In ultimately determining a royalty rate of 2.5% for both of the Internet Companies, the district court relied upon several benchmark agreements, including ASCAP's agreements with Music Choice, terrestrial radio stations, the broadcast television networks, and the cable television networks.

For Yahoo!, because only a portion of the revenue generated from its website is attributable to performances of musical works, the trial court decided to measure Yahoo!'s music-use revenue by multiplying the company's total revenue from its licensed services-defined as those business units that publicly perform music-less certain customary costs (such as for advertising sales commissions and traffic acquisition expenses) by a music-use-adjustment factor (“MUAF”). The MUAF was a fraction that reflected the amount of time users spent streaming performances of musical works relative to their overall time on the website; its numerator was the number of hours of music streamed from the licensed sites and services, and its denominator was the number of hours that the company's licensed sites and services were utilized.

For RealNetworks, the trial court at first accepted ASCAP's argument that it was unnecessary to apply a MUAF because, unlike Yahoo!, “the vast majority of RealNetworks's revenue subject to fee is generated from subscription music services and advertising-supported sites where music is the central theme.” The trial court, however, did reduce RealNetworks' revenue figure by subtracting revenue attributable to RealNetworks' Technology Products and Solutions business unit, which develops and markets software products and services that enable wireless carriers, cable companies, and other media communication companies to distribute media content to PCs, mobile phones, and other non-PC devices. In its 2009 Final Fee Determination, the trial court altered course and applied certain MUAFs to RealNetworks' various sites and services, but without explaining how it arrived at these MUAFs.

Appellate Court Proceedings
This case presents two distinct questions that arise from the transmittal of musical works over the Internet: First, whether a download of a digital file containing a musical work constitutes a public performance of that musical work; and, second, whether the district court, acting in its capacity as the rate court, was reasonable in its assessment of the blanket license fees of Yahoo! Inc. and RealNetworks, Inc. (collectively, “the Internet Companies”) to publicly perform any of the millions of musical compositions in the American Society of Composers, Authors and Publishers (“ASCAP”) repertory.

The appellate court affirmed the ruling of the trial court that a digital download of a song does not constitute a public performance under section 106(4) of the Copyright Act. The court also vacated the district court’s assessment of fees for the blanket licenses that Yahoo! Inc. and RealNetworks Inc. sought from ASCAP, and remanded for further proceedings.

Since the appellate court held that a digital download of a song was not a public performance of that song, ASCAP was not entitled to compensation for downloads under its performance royalty agreements. The appellate court distinguished digital downloads from “performances” as defined in section 101 of the Copyright Act because, unlike the examples listed in section 101, digital downloads are not “contemporaneously perceived.” In so holding, the court looked to the terms “recite,” “render,” and “play” that are found in the definition. The court also distinguished digital downloads from the online streaming of songs, because streaming—like broadcasting—makes a song audible to the listener simultaneously with its transmission.

The appellate court found that the district court did not adequately support the reasonableness of its method in determining the formula used to calculate the fees payable to ASCAP for the blanket licenses. The court found error in both the trial court’s method for measuring the contribution percentage of each company’s music use to its total revenue, and the royalty rate of 2.5 per cent that would be applied uniformly to the entirety of each company’s businesses. Thus, the appellate court remanded the case to the trial court for reconsideration of its fee assessment.

In sum, the appellate court affirmed the trial court's ruling that a download of a musical work does not constitute a public performance of that work and vacated the trial court's assessment of fees for the blanket ASCAP licenses sought by the Internet Companies and remand for further proceedings.