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Traditional broadcast radio stations licensed by the Federal Communications Commission (FCC) are leaping into Internet audio programming, joining an innovative new breed of Internet broadcasters, known as “Webcasters,” that are poised to fundamentally alter the nature of radio as an entertainment medium. The development of Internet radio, however, presently is hindered by the uncertainty surrounding the copyright liability of FCC-licensed radio stations that simultaneously transmit their AM/FM signals online, a process known as “streaming.” The recording and broadcast industries are unable to agree on whether traditional FCC-licensed radio broadcasters are exempt from such liability, or whether, in addition to the fees they pay for over-the-air broadcasting of the underlying musical works, these broadcasters must also pay royalty fees for the public performances of sound recordings which occur during the streaming of their radio signals over the Internet. A sound recording embodies two distinct expressions which are protected differently under copyright law. The first is the underlying musical work (the tune plus any accompanying lyrics, as created by the composer). The second protected expression is the sound recording itself (the aggregation of the musical sounds, as created by the vocalist, instrumentalist, music director, engineer, etc.). Broadcasters, in order to play recorded songs over the air, must pay statutory royalty payments (based upon a percentage of their gross revenues) to the copyright owners of the underlying musical works. Broadcasters typically submit these payments to the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), or some other performing rights agency. Broadcasters are not, however, required to pay royalty fees to the owners of sound recordings for their over-the-air broadcasts. The question at hand is whether traditional broadcasters also must pay such royalty fees for their Webcasts of sound recordings. In 1998, Congress passed the Digital Millennium Copyright Act (DMCA) which was supposed to resolve this matter. The DMCA amended �114 of the Copyright Act to require compulsory (or “statutory”) licensing for certain “eligible nonsubscription transmissions” of sound recordings over the Internet. In addition, Congress also amended �112 to give Webcasters a statutory license to make certain reproductions of sound recordings. The statute, however, does not squarely address the question of whether the compulsory licensing scheme applies to the Webcasts of traditional, terrestrial-based radio stations. In an effort to settle the dispute so that the recording industry and Webcasters could move forward with negotiations establishing the rates and terms of the compulsory license, the Recording Industry Association of America, Inc. (RIAA) filed a Petition for Rulemaking on March 1, 2000, urging the Copyright Office to rule that the AM/FM Webcasts of FCC-licensed stations are not exempt from copyright liability and are instead subject to either compulsory or discretionary licensing. On March 27, 2000, the National Association of Broadcasters (NAB) raised the same issue with the U.S. District Court for the Southern District of New York, asking the court to declare that the digital audio streaming by FCC-licensed broadcasters is exempt from additional copyright liability, and therefore the DMCA’s licensing scheme does not apply to their Internet audio programming. The NAB and other broadcasters subsequently filed a motion with the Copyright Office requesting the suspension of the proposed rulemaking proceeding until the New York court has issued its judgment. These actions will have a significant impact on the scope and timing of the closely related Copyright Arbitration Royalty Panel (CARP) proceeding. The CARP proceeding, convened by the Copyright Office to establish the statutory royalty rates applicable to qualifying digital audio transmissions, will no doubt provoke further tensions and litigation between the recording industry and Webcasters. THE SOUND RECORDING RIGHT Historically, sound recordings of musical compositions were not afforded copyright protection. Only the copyright owner of the underlying musical work embodied in a sound recording enjoyed a right to perform the work publicly. In 1971, with the passage of the Sound Recording Amendment, limited copyright protection was given to record companies and labels. The purpose of the law was to prevent the unauthorized reproduction and piracy of sound recordings. The amendment, however, did not grant a performance right in sound recordings. Thus, recording artists and record labels could not collect royalty payments for their sound recordings. This situation changed in 1995 when Congress passed the Digital Performance Right in Sound Recordings Act (DPRA) creating a limited performance right applicable to certain digital audio transmissions. This legislation addressed three categories of digital transmissions: (1) over-the-air broadcast transmissions which were exempted from the performance right (applicable to FCC-licensed radio stations); (2) subscription audio services which were generally subject to statutory licenses, and (3) interactive, on-demand transmissions which were subject to full copyright liability, i.e., discretionary licenses obtained through negotiations with individual copyright owners. The DPRA did not bring Webcasting activities within the scope of the sound recording performance right. With the passage of the DMCA in 1998, Congress expanded the scope of the DPRA’s statutory license to include “eligible nonsubscription transmissions” which covers certain Webcasting activities. To qualify for the statutory license, Webcasters must comply with rigorous requirements designed to ensure that Webcasts do not displace record or CD sales. These requirements include the following: � Transmissions must not exceed the “sound recording performance complement” – a term referring to prescribed limits on the number of songs a Webcaster can play from one artist or album, or CD, within a designated period of time. � Transmissions must not be part of an interactive service. � Webcasters must not publish an advance program schedule or prior announcement providing the titles of the sound recordings to be transmitted. � The transmission must not be part of an archived program of less than five hours’ duration, or part of an archived program of five hours or greater in duration that is made available for a period exceeding two weeks. � The transmission must not be part of a continuous program which is of less than three hours’ duration. � Webcasters must not transmit more than three times in any two-week period any program of less than one hour that is publicly announced in advance, and that plays songs in a predetermined order. � Webcasters must not transmit more than four times in any two-week period any program of one hour or more in duration that is announced in advance, and that plays songs in a predetermined order. � Webcasters must not knowingly perform sound recordings in a manner that is likely to cause confusion as to the affiliation or sponsorship of the copyright owner or recording artist. � Webcasters must generally cooperate to prevent end users from scanning transmissions in order to locate a particular sound recording. � Webcasters must deploy any available technology to prevent digital copying of sound recordings. � Webcasters must not use unauthorized recordings as a part of any program. � Webcasters must not interfere with any technical measures used by copyright owners to identify or protect their works. � Webcasters must implement some technology by which end users can identify the title of the recording, the recording artist, and related information. With regard to those entities that do not qualify for the statutory license and are not exempt from copyright liability, the law requires that they negotiate directly with individual copyright owners who may use their discretion in issuing public performance licenses. Entities engaged in Webcasting activities that fail to obtain either a compulsory or discretionary license face exposure to costly, potentially devastating, copyright infringement actions. [FOOTNOTE 1] VIEWS OF INTERESTED PARTIES Each of the parties that has an interest in this issue has, of course, its own particular position. FCC-licensed broadcasters.Traditional broadcasters argue that the plain language and legislative history of �114(d)(1)(A) of the Copyright Act clearly create an exemption for non-subscription, non-interactive transmissions and retransmissions of over-the-air programming by FCC-licensed radio stations. [FOOTNOTE 2]In other words, broadcasters claim that the exemption from the sound recording performance right which they currently enjoy under the DPRA (which allows them to play recorded music without paying additional license fees) extends to their Webcasting activities. They argue further that the conditions required for an additional statutory license are purposefully directed at Internet-based Webcasts, and are incompatible with common radio broadcasting practices. In their view, FCC-licensed stations would need to radically alter their programming practices in order to qualify for the statutory license (i.e., they would, among other changes, be required to discontinue the common practice of announcing in advance the recordings they will be playing), or face the highly burdensome task of negotiating separate licenses with each and every record label. Broadcasters warn that if FCC-licensed stations are found not to be exempt from the digital performance right in sound recordings, they may take the path of least resistance and forsake Internet programming altogether. Such a result, they argue, could not have been contemplated by Congress. The recording industry. Recording artists and record companies, led by RIAA, argue that the Webcasts of FCC-licensed radio stations are not exempt from the digital performance right. In their view, the exemption for “nonsubscription broadcast transmissions” covers only traditional, over-the-air broadcasts made in a local service area pursuant to the broadcaster’s FCC license. They insist that the exemption does not apply to AM/FM Webcasts, which are unregulated, worldwide transmissions. It makes no sense, they stress, to exempt the Webcasts of FCC-licensed broadcasters when the same Webcasts are subject to the statutory license fees when made by third parties. Internet-only Webcasters. Internet-only Webcasters have aligned themselves with the record companies in seeking to deny traditional broadcasters the extension of their exemption from copyright liability. They argue that the extension of this exemption would give broadcasters a competitive advantage over Internet-only Webcasters that must pay license fees for the programs they stream. CONCLUSION Resolving the question of whether FCC-licensed radio stations are exempt from sound recording performance right is just the first step toward establishing a viable copyright regime for Webcasting. The next step will be to determine the appropriate compulsory license fee amounts, a complicated process which will likely lead to further litigation. In addition, a dispute is likely to arise with respect to the applicability of the statutory eligibility requirements. For example, questions may arise over whether a particular service is “interactive,” and thus subject to discretionary licensing, or whether a Webcaster has taken adequate measures to prevent digital copying of sound recordings. A real concern at this time is that the uncertainty regarding the costs and liabilities of audio streaming will drive broadcasters away from the digital marketplace, thereby possibly stunting the growth and development of Internet radio. Lee W. Shubert is Special Counsel to, and Laura A. Otis an associate with, Rosenman & Colin LLP, in the firm’s telecommunications practice group. FOOTNOTES: FN1The minimum statutory penalty for copyright infringement is $750 per work. FN2Section 114(d)(1)(A) of the Copyright Act provides: “Exempt transmissions and retransmissions: 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 of section 106(6) if the performance is part of a nonsubscription broadcast transmission.” A “broadcast” transmission is defined in �114(j)(3) as a “transmission made by a terrestrial broadcast station licensed by the Federal Communications Commission.”

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