Statutory license of sound recordings

Mechanical license
Almost a century ago, Congress added to the Copyright Act the right for copyright owners to make and distribute, or authorize others to make and distribute, mechanical reproductions (known today as phonorecords) of their musical compositions. Due to its concern about potential monopolistic behavior, Congress also created a statutory license, Section 115 of the Act, to allow anyone to make and distribute a mechanical reproduction of a musical composition without the consent of the copyright owner provided that the person adhered to the provisions of the license, most notably paying a statutorily established royalty to the copyright owner.

Although originally enacted to address the reproduction of musical compositions on perforated player piano rolls, the statutory license has for most of the past century been used primarily for the making and distribution of phonorecords and, more recently, for the digital delivery of music online.

Statutory license for digital transmissions
In 1995, Congress recognized that “digital transmission of sound recordings [was] likely to become a very important outlet for the performance of recorded music.” Moreover, it realized that “[t]hese new technologies also may lead to new systems for the electronic distribution of phonorecords with the authorization of the affected copyright owners.” For these reasons, Congress made changes to Section 115 to meet the challenges of providing music in a digital format when it enacted the Digital Performance Right in Sound Recordings Act of 1995 (DPRA) which also granted copyright owners of sound recordings an exclusive right to perform their works publicly by means of a digital audio transmission subject to certain limitations. Specifically, Congress wanted to reaffirm the mechanical rights of songwriters and music publishers in the new world of digital technology.

The changes to Section 115 were also designed to minimize the burden on transmission services by placing record companies in the position to license not only their own rights, but also, if they chose to do so, the rights of songwriters and music publishers to authorize digital phonorecord delivery.

Statutory language
Section 115 provides a “compulsory license to make and distribute phonorecords” of any musical work previously recorded once a phonorecord of a nondramatic musical work has been “distributed to the public in the United States under authority of the copyright owner.” Such a license “includes the right of the compulsory licensee to distribute or authorize the distribution of a phonorecord of a nondramatic musical work by means of a digital transmission which constitutes a digital phonorecord delivery. The term “digital phonorecord delivery” or “DPD” is defined, in part, as “each individual delivery of a phonorecord by digital transmission of a sound recording which results in a specifically identifiable reproduction by or for any transmission recipient of a phonorecord of that sound recording.”

Congress added the DPD provisions to Section 115, as part of the DPRA of 1995, with support of the music publishers, noting: “The intention in extending the mechanical compulsory license to digital phonorecord deliveries is to maintain and reaffirm the mechanical rights of songwriters and music publishers as new technologies permit phonorecords to be delivered by wire or over the airwaves rather than by the traditional making and distribution of records, cassettes, and CDs.”

Digital Millennium Copyright Act Amendments
In 1998, in the Digital Millennium Copyright Act (DMCA), Congress amended several statutory licensing statutes to provide for and clarify the treatment of different types of webcasting. Some transmissions of sound recordings are exempt from the public performance right, for example, a nonsubscription broadcast transmission; a retransmission of a radio station’s broadcast within 150 miles of its transmitter; and a transmission to a business establishment for use in the ordinary course of its business. In contrast, a digital transmission by an “interactive service” is not exempt from the public performance right, nor does it qualify for a compulsory license. The owner of an interactive service &mdash; one that enables a member of the public to request or customize the music that he or she receives &mdash; must negotiate a license, including royalty rates, directly with copyright owners.

But, a category of webcasting that does qualify for a compulsory license is “an eligible nonsubscription transmission.” A subscription service is one that is limited to paying customers. Hence, webcasters who transmit music over the Internet on a nonsubscription, noninteractive basis may qualify for the statutory license under 17 U.S.C. §114(d).

A licensee under §114 may also qualify for a statutory license under 17 U.S.C. §112(e) to make multiple “ephemeral” &mdash; or temporary &mdash; copies of sound recordings solely for the purpose of transmitting the work by an entity legally entitled to publicly perform it.

Entities who set royalty rates
Since 1976, the Copyright Royalty Tribunal, Copyright Arbitration Royalty Panels, and Copyright Royalty Judges have been responsible, successively, for recommending or setting rates, terms, and conditions for statutory licenses.

In the Copyright Act of 1976, Congress established the Copyright Royalty Tribunal. The Copyright Royalty Tribunal operated until 1993, when Congress abolished it and authorized the Librarian of Congress, upon the recommendation of the Register of Copyrights, to appoint and convene Copyright Arbitration Royalty Panels. The Copyright Arbitration Royalty Panel system consisted of ad hoc arbitration panels; each Copyright Arbitration Royalty Panel was selected for a particular proceeding.

Finally, in the Copyright Royalty and Distribution Reform Act of 2004, Congress replaced the Copyright Arbitration Royalty Panel system with the Copyright Royalty Judges. The three Copyright Royalty Judges are housed in the Copyright Royalty Board, an establishment created within the Library of Congress. The Copyright Royalty Judges are now responsible for establishing and adjusting the rates and terms of statutory licenses, among other things.

Process for setting royalty rates
When establishing or adjusting royalty rates for statutory licenses, the Copyright Royalty Judges gather evidence and hear relevant testimony, and consider standards codified in law. The judges may consult the Register of Copyrights, whose timely decision on questions of copyright law is binding on the judges. The Copyright Royalty Judges establish or adjust royalty rates for statutory licenses using one of two standards:


 * Willing buyer-willing seller. Under this standard, the Copyright Royalty Judges establish rates that most clearly represent the fees that would have been negotiated in the marketplace. The Copyright Royalty Judges base their decision on economic, competitive, and programming information presented by the parties. In establishing such rates and terms, the Copyright Royalty Judges may also consider the rates and terms from voluntary license agreements.


 * Section 801(b)(1). Under the standards established in 17 U.S.C. §801(b)(1), the Copyright Royalty Judges adjust rates and terms of royalty payments to achieve reasonable rates in accord with the following objectives: (A) to maximize the availability of creative works to the public; (B) to afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions; (C) to reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication; and (D) to minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.