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Amid much controversy, radio stations attempt to continue to stream their radio broadcasts over the Internet without the consent of the record companies and artists that own the performance rights to the music being streamed. In light of a rule promulgated by the U.S. Copyright Office stating that simultaneous transmissions of broadcasts over the Internet do not fall within the scope of the royalty-free broadcast exemption applied to radio stations, radio stations are faced with paying royalties to the copyright owners whose songs are streamed or risk the statutory damages set forth in the Copyright Act, 17 U.S.C. 101-1332 (1976). People and companies that intentionally transmit music over the Internet may be subject to stringent statutory damages — potentially up to $150,000 — per infringement. Not only are file-sharing businesses such as Kazaa, Morpheus or eDonkey 2000 subject to statutory damages, but radio stations that stream over the Internet may be subject to statutory liability, as well. Bonneville International Corp. v. Marybeth Peters, as Register of Copyrights, 153 F. Supp. 2d 763 (E.D. Pa. 2001). In the mid-1990s, at the recording industry’s urging, Congress noticed that the Internet had opened the door to allow the expansive dissemination of information, as well as music, to homes and businesses throughout the world. Developments in technology had enabled listeners to receive, download and subsequently record digital sound recordings over the Internet with ease. Due to the expansive nature of the Internet and “free” availability of music over the Internet, the recording industry pushed for statutory protections of its revenue stream, via amendments to the Copyright Act. The recording industry feared that if listeners had free access to music, they would no longer purchase CDs, and without CD sales, the owner of a sound-recording copyright would not be compensated because its royalties were based upon revenues from album sales. DIGITAL PERFORMANCES In order to protect against the transfer of music without compensation and to avoid destruction of the market for recorded music, Congress revisited and amended the Copyright Act in 1995 by passing the Digital Performance Rights in Sound Recordings Act of 1995 (DPRA). Pub. L. No. 104-39, 109 Stat. 336 (1995). The DPRA gave copyright owners of sound recordings the exclusive right to perform publicly their copyrighted works by means of a digital audio transmission and receive compensation for the public performance. Before this amendment, sound-recording owners received no compensation when their songs were publicly performed by way of a digital transmission. Specifically, under the DPRA, a party could not publicly perform, by means of a digital audio medium, a sound recording over an interactive service, without first obtaining the consent of the copyright owner. Moreover, the operator of a noninteractive subscription service could not publicly perform a recording without first obtaining a license. The DPRA “obligated” the copyright owner to provide such a license to the operator of a noninteractive service, but not to that of an interactive service. Although the noninteractive license was mandatory, the DPRA also provided for “mandatory” licensing fees. Accordingly, the DPRA mandated a licensing fee when a sound recording was transmitted in a noninteractive way through digital subscription transmissions. Pursuant to the DPRA, any owner of a copyright, whose phonocard is digitally performed over the Internet, is entitled to receive licensing fees. A recorded piece of music contains two distinct copyrights: a musical work and a sound recording. A musical work is the underlying written notes and lyrics for a song. TB 1 Forms Co. v. Jem Records, 655 F. Supp. 1575, 1576 (D.N.J. 1987). A sound recording is the actual sounds captured when the song is performed and recorded. Id. An online digital audio transmission over the Internet is a public performance of both the musical work as well as the sound recording. Accordingly, online streaming of music affects two separate public-performance rights. As such, both the copyright owner of the musical work as well as the copyright owner of the sound recording are entitled to compensation under the DPRA. Although the DPRA addressed performance rights surrounding Internet and cable, the Copyright Act was silent as to rights surrounding Webcasting or streaming over the Internet or nonsubscription transmissions. As a result, in 1998, Congress adopted more amendments to the Copyright Act. The new round of amendments were called the Digital Millennium Copyright Act (DMCA), which attempted to address streaming or Webcasting over the Internet. Pub. L. No. 105-304, 112 Stat. 2860 (1998). Specifically, one of the DMCA’s purposes was to clarify that “the digital sound recording performance right applies to non-subscription digital audio services such as webcasting.” Bonneville, 153 F. Supp. 2d at 778. Nonsubscription transmissions are defined as noninteractive services. Pub L. No. 105-304, 112 Stat. 2860 (1998). Accordingly, a noninteractive digital transmission service, whether subscription-based or not, could take advantage of the mandatory statutory license for sound recordings, while interactive services would be liable for infringement unless they obtain permission from each copyright owner of a song transmitted. S. Rep. No. 104-128 at 16 (1995). Both the DMCA and DPRA are evidence of Congress’ concern to protect record companies and recording artists from loss of revenue due to the pirating of musical compilations over the Internet. However, within both the DMCA and DPRA, there is a “conspicuous absence” of any “explicit” mention of a radio station’s right to stream its radio broadcast, without having to pay a royalty to the owner of the copyright whose work is contained in the broadcast. See Bonneville, 153 F. Supp. 2d at 779. Generally, Federal Communications Commission (FCC)-licensed AM and FM radio stations are permitted to broadcast sound recordings over the air in their geographic region without fear of being sued for infringement or paying royalties to those who hold the copyright in those sound recordings. See 17 U.S.C. 114(a)(1)(B). Broadcast radio stations must pay royalties to the composers of the songs they play, but not to artists or record companies. Notwithstanding this general rule, the U.S. Copyright Office promulgated rules stating that the statute under which royalty-free radio transmissions are permitted, 17 U.S.C. 114, does not extend to simultaneous transmissions of those radio stations over the Internet. Therefore, radio stations that wish to stream or Webcast their radio transmissions over the Internet must obtain a license from the holders of the copyrighted recordings or risk being sued for copyright infringement and thereby be subject to the statutory damages ($150,000 per infringement) discussed above. THE ‘BONNEVILLE’ CASE In Bonneville, the plaintiffs — owners and operators of hundreds of AM/FM national radio stations — sued the register of copyrights seeking to invalidate the rule implemented by the Copyright Office stating that radio stations were prohibited from simultaneously streaming their radio broadcasts over the Internet when the radio stations failed to obtain a license for each song transmitted before streaming their broadcasts. The plaintiffs argued that their practice of streaming their AM/FM broadcasts over the Internet was a “nonsubscription broadcast” and thereby exempted from public performance rights. The court rejected the radio stations’ argument that the streaming was subject to the radio station exemption under the Copyright Act. The court found that although � 114(d)(1)(A) of the Copyright Act sets out an exemption to public performance rights for “a nonsubscription broadcast transmission,” use of the terms “terrestrial” and “licensed as such by the [FCC]” within the Copyright Act indicated that the � 114(d)(1)(A) exemption to the public performance right was not intended to encompass AM/FM broadcasters engaged in streaming. Specifically, the term “terrestrial” indicated a “local” radio station, grounded by an antenna and limited to a specific geographic region. Moreover, “licensed by the FCC” meant that the FCC would have the authority to police and license the activity. Because Webcasting signals are made by computer and relayed throughout world, Webcasting is outside the scope of “terrestrial broadcast station” and beyond the boundaries of FCC authority and therefore beyond the scope of the Copyright Act exemption. Bonneville, 153 F. Supp. 2d at 768-770. The Bonneville court noted that Congress decided to compensate sound recording owners when their music was performed publicly because consumers would no longer purchase CDs when they had free public access to the songs. Bonneville, 153 F. Supp. 2d at 778-79. Accordingly, to permit AM/FM broadcasters to Webcast their radio broadcasts without restrictions would be the equivalent of giving them an “unfair advantage” over those subject to licensing restrictions within the Webcasting market. The court stated: “Because in enacting both the DPRA and the DMCA, Congress was concerned with protecting against the dangers webcasting posed to the rights of copyright holders, and because AM/FM stations engaged in webcasting posed those same dangers, there was no legitimate reason to create such a disparity in the webcasting market.” Bonneville, 153 F. Supp. 2d at 783. As such, the ability to expand the scope of AM/FM broadcasts through Internet streaming was incompatible with Congress’ goal of preserving the existing relationship between the Webcasters and the recording industry. Therefore, AM/FM Webcasters were not exempt from copyright liability. THE ROYALTY SCHEDULE In order to address this goal of preserving the relationship between copyright owners and broadcasters, Congress created a system that allows a Webcaster to obtain a license covering public performance rights for all sound recordings. The purpose of this license is to compensate recording companies for the “risk” of lost sales due to the “possibility” that an Internet user may make an unauthorized copy directly from the transmission. The statutory license will be subject to a royalty rate ultimately determined by the Copyright Office. See 17 U.S.C. 114(f). Before the Copyright Office set the royalty rate, it gave the Webcasters and record companies the opportunity to negotiate voluntarily and “mutually” determine a fair royalty rate. The Digital Media Association (DiMA), which represent Webcasters, and the Recording Industry Association of America (RIAA), which represent record companies and artists, attempted to determine a royalty schedule. As part of the negotiations, DiMA offered 0.015 cents per song, while the RIAA offered 0.4 cents per song. The RIAA’s proposed per-song rate was approximately 25 times what DiMA says is reasonable. After DiMA and RIAA were unable to agree upon a royalty rate, the matter was sent to the Copyright Arbitration Royalty Panel (CARP). CARP was a panel of three arbitrators established by the Copyright Office to resolve the issue. CARP ultimately recommended that stand-alone Webcasters pay 0.14 cents, and that radio stations pay 0.07 cents, for each performance streamed. This recommendation angered DiMA. DiMA stated that onerous fees proposed would exceed their revenue and drive the Webcasters out of business. To protest the CARP’s proposal, a number of independent radio station Webcasters turned off their music streams on May 1. On June 20, the librarian of Congress, after accepting the recommendation of the register of copyrights, ruled to charge both radio stations and stand-alone Webcasters 0.07 cents per performance. That translates to 70 cents per song for every 1,000 listeners. For noncommercial entities, the librarian announced a rate of 0.07 cents for stand-alone Webcasters and 0.02 cents per performance for radio stations with a simultaneous Webcast. All royalty rates are scheduled for review and “renewal” every two years. The Copyright Office ruling angered both Webcasters and the recording industry. The royalty rate, if implemented, would be retroactive to 1998 and full payment of the royalties from the past years would become due on Oct. 20. Faced with the impending royalty fees, more than 200 Internet-based radio stations have already been forced to shut down their stream. Web sites such as www.saveinternetradio.org and www.webcasters.org have been instituted to aid in the lobbying effort to “save” Webcasters from having to pay the excessive royalty rate. On July 15, the National Association of Broadcasters and radio companies Bonneville International, Clear Channel Communications, Cox Radio, Emmis Communications, Entercom Communications and Susquehanna Radio filed an appeal with the 3rd U.S. Circuit Court of Appeals stating that both the Bonneville court as well as the Copyright Office had misinterpreted the law when they said that radio stations had to pay musicians and recording companies when they stream their songs over the Internet. An additional appeal was filed jointly by the Intercollegiate Broadcasting System and Harvard Radio Broadcasting Co. in the D.C. Circuit. The librarian of Congress filed a motion with the court in August, arguing that Webcasters that did not participate in the CARP were not “an aggrieved party who would be bound by the determination” and thus should not be allowed to file an appeal in court against the decision. The motion and appeal are still pending. The plaintiffs in both cases recently filed motions, still pending, to stay implementation of the fees due in October. Some federal lawmakers introduced a bill in late July that would eliminate potentially steep royalty payments for small Internet radio stations. Entitled the Internet Radio Fairness Act, the bill would exempt from royalties any station that makes less than $6 million in annual revenue. The bill would also make several other changes to the pending copyright royalty fees, including changes in the way that royalties would be determined in the two-year cycle of decisions. Passage of the bill is unlikely this year. In response to the pending controversy, Artemis Records, the label for Steve Earle and Kittie, announced on July 29 that it would waive all charges against radio stations that streamed its music for one year. It made this announcement notwithstanding the fact that it would be entitled to receive retroactive royalties beginning in October. DiMA has applauded Artemis’ decision and “hopes that this is the first of many announcements.” In conclusion, if the major labels fail to follow Artemis’ lead and if the Bonneville plaintiffs lose their appeal, Webcasters’ choice will be either to pay royalties for “each song” played at a rate of 70 cents per song heard by 1,000 listeners or to risk statutory damages that may total $150,000 per instance. One can only imagine the costs, given the number of songs radio stations have broadcasted every day since 1998. Many Webcasters have indicated that if the Copyright Office rate is implemented they will be forced to go silent, permanently. Andrea E. Bates is an associate at Atlanta’s Alston & Bird, www.alston.com. She practices in the firm’s intellectual property transactional group.

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