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In a major win for the recording industry, a federal judge has refused to overturn a rule by the U.S. Copyright Office that says radio stations are not exempt from paying royalties to record producers and recording artists when their broadcasts are transmitted digitally over the Internet in a practice known as “streaming.” “While technology has increased exponentially in the last 20 years, Congress has relied on and vested in the Copyright Office certain powers to grapple with the ever-evolving technological landscape. It is this interplay between Congress and the Copyright Office which must set the guidelines,” federal Judge Berle M. Schiller of the U.S. District Court for the Eastern District of Pennsylvania wrote in Bonneville International Corp. v. Peters. “As much as possible, courts should be passive players in this quickly changing area, only weighing in when the impasses raise issues of constitutional proportion, or decisions are without any statutory authority or so arbitrary that court intervention is required,” Schiller wrote. Schiller said Congress may one day choose to address the issue of whether streaming should be exempt from the public performance right by amending the Copyright Act. But for now, Schiller said, his hand was stayed by the cautionary words of the legendary Judge Learned Hand who warned that it is not “desirable for a lower court to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time but whose birth is distant.” The plaintiffs in the suit are owners and operators of hundreds of AM and FM radio stations across the country. The lead defendant is Marybeth Peters, the Register of Copyrights. The Recording Industry Association of America intervened as a co-defendant. The suit focuses on the scope of the rights enjoyed by copyright owners and the limits that the Copyright Act places on those rights in the context of radio broadcasts. Section 106 of the Copyright Act creates a “public performance” right that allows for copyright owners to either prevent others from publicly performing their work (publicly performing includes transmissions of copyrighted works) or to charge a royalty for any such transmissions. But Section 114 of the Copyright Act exempts “nonsubscription broadcasts” from the Section 106 public performance right. And Section 112 sets out exemptions for making “ephemeral copies” of recordings for the limited purpose of effecting a transmission. The radio stations’ lawyers — R. Bruce Rich, Mark A. Jacoby and Caroline R. Clark of Weil Gotshal & Manges in New York — argued that streaming AM/FM broadcasts over the Internet should be classified as a “nonsubscription broadcast” and that they should be entitled to make ephemeral copies of copyrighted recordings under Section 112 of the Copyright Act. In a rule promulgated in December 2000, the Copyright Office determined that AM/FM broadcast signals transmitted simultaneously over a digital communications network, such as the Internet, are not exempted by Section 114. In the suit, the radio stations argue that the Copyright Office’s rulemaking exceeded the agency’s statutory authority. But lawyers from the U.S. Department of Justice were joined by a team of lawyers for the recording industry who urged the court to sustain the rule. In his 37-page opinion, Schiller traced the history of copyright law as it relates to sound recordings and royalties. “United States copyright law has long recognized an exclusive right of public performance in a musical composition. However, copyright protection for sound recordings embodying musical compositions, the copyright protection at issue in the case at bar, is a far newer concept,” Schiller wrote. “The recording industry first requested a broad performance right in the 1920s and has continued to request such a right ever since.” But while the Copyright Office has supported a broad sound recording performance right, Schiller found that “Congress, until recently, had resisted giving copyright protection to sound recordings of musical compositions.” Congress first extended limited federal copyright protection to sound recordings with the Sound Recording Amendment of 1971, a law designed to counter the increasingly common unauthorized commercial copying and sale of sound recordings made possible by advances in duplicating technology. But the 1971 law did not include a public performance right, Schiller said, since it was limited to “direct reproduction” of the original recording. Until 1995, he said, a sound recording copyright did not include any right in public performances of sound recordings. While the public performance of a sound recording would most likely require a license from the owner of the musical composition, no permission was required from the holder of the copyright in the sound recording itself. But the law began to change with the Digital Performance Right in Sound Recordings Act of 1995 which expanded the scope of copyright protection afforded to sound recordings by including a new right for public performances of sound recordings by digital audio transmission. However, the new public performance right applied only to subscription and interactive services and specifically exempted broadcasting and related transmissions. By limiting the law, Schiller said, “Congress expressly refused to create a more general performance right.” Instead, Schiller said, Congress wanted only “to protect record companies and recording artists from a reduction of record sales threatened by technological developments, specifically interactive and subscription services made possible by the emergence of digital audio services capable of delivering high-quality transmissions of sound recordings.” Interactive and subscription services are capable of providing a consumer with the ability to hear specific recordings on demand. In 1998, Congress once again amended the Copyright Act with the Digital Millennium Copyright Act of 1998, a law that eliminated some of the Section 114 exemptions. But radio stations remained safe because the new law did nothing to change the exemption for a “nonsubscription broadcast transmission.” Schiller found that the 1998 law was passed in response to “a remarkable proliferation of music services offering digital transmission of sound recordings to the public.” The House Manager, he said, noted that “services commonly known as ‘Webcasters’ have begun offering the public multiple highly-themed genre channels of sound recordings on a nonsubscription basis.” On Dec. 11, 2000, the Copyright Office promulgated a rule stating that AM/FM broadcasters who stream their broadcasts over the Internet — or “AM/FM Webcasters” as the Copyright Office refers to them — are not exempt from the digital performance right of Section 106. Instead, it said, the exemption is limited to over-the-air transmissions by FCC-licensed broadcasters. In the suit, the radio stations argued that the Copyright Office lacks the power to determine whether AM/FM streamers are exempt from the Section 106 public performance right by Section 114 because Congress opted not to vest the agency with that authority. Schiller disagreed, saying “the Copyright Act evinces Congress’ intent to empower the Copyright Office to interpret the statute.” Congress also “delegated interpretative authority” to the Copyright Office with regard to Section 114. Over the years, Schiller said, Congress has clearly shown that it “recognized the expertise of the Copyright Office in matters relating to copyright.” Turning to the specific question of whether the Copyright Office had the power to decide the issue of streaming, Schiller found that “Congress implicitly, if not explicitly, entrusted the Copyright Office with the task of determining which entities and means of transmission would be exempted by Section 114 from the public performance rights of Section 106.” And the December 2000 rule also made eminent sense, Schiller found, since it would be inconsistent to read Section 114 to include an exemption for streaming. “It strains credulity to suggest that Congress intended to exempt AM/FM streaming, which is global in nature, while simultaneously limiting retransmissions to specific FCC-defined geographic areas,” he wrote. TRADITION ARGUMENT REJECTED Schiller rejected the argument that the rule violates the spirit of the 1995 law and its intent to preserve “the mutually beneficial relationship between recording and traditional broadcast industries.” “While it is true that broadcasters traditionally have not been subject to any public performance right for using a recording in an AM/FM broadcast, the streaming of broadcasts over the Internet is not part of the traditional practices of AM/FM broadcasters which form the basis of their traditional relationship with the recording industry,” Schiller wrote. “Internet streaming by AM/FM broadcasters is entirely different from traditional over-the-air broadcasting because it is global in nature, as opposed to being limited to geographically defined areas, and because the digital nature of the transmissions, as opposed to the analog nature of traditional over-the-air broadcasts, significantly enhances the ability to create high-quality copies from the transmissions.” The rule is consistent with recent efforts by Congress to address technological advances that threaten record sales, Schiller said, because “the global nature and the enhanced quality of the transmissions increase the likelihood that record sales could be affected by the streaming of AM/FM broadcasts.” Schiller concluded that the Copyright Office’s rule was not only reasonable, but one that he, too, would have passed if the task were his. “Were I approaching this question without the benefit of a Copyright Office rulemaking and therefore, without the need to defer to a reasonable agency determination … I would come to the same conclusion,” Schiller wrote. “Both the ambiguity that emerges from a facial reading of the statute as well as the legislative history of both the 1995 and 1998 amendments to the Copyright Act show that it is highly unlikely that Congress even considered AM/FM streaming, much less intended to exempt such activities from the Section 106 public performance right.” The Recording Industry Association of America was represented by attorneys Vincent V. Carissimi of Pepper Hamilton in Philadelphia and Robert Alan Garrett, Leonard H. Becker and Rebecca Nassab of Arnold & Porter in Washington, D.C. Justice Department attorneys Richard G. Phillips and Theodore C. Hirt argued the case for the Copyright Office.

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