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In a huge win for the recording industry, a federal appeals court has refused to overturn a rule passed by the U.S. Copyright Office that says radio stations must pay royalties when their broadcasts are simultaneously transmitted digitally over the Internet in a practice known as “streaming.” The unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals found that the rule was correct because Congress intended for the royalty exemption to apply only to “traditional, over-the-air broadcasts.” The decision in Bonneville International Corp. v. Peters, handed down Friday, upholds an August 2001 decision by U.S. District Judge Berle M. Schiller. The district judge had concluded that the rule was entitled to deference, and even if it were not, it would still pass legal muster because it is consistent with recent congressional efforts to address technological advances that threaten record sales. The 3rd Circuit concurred, finding that, in passing the rule, the Copyright Office correctly interpreted two statutes passed in recent years to respond to technological advances — the Digital Performance Right in Sound Recordings Act of 1995, or DPRA, and the Digital Millennium Copyright Act, or DMCA, passed in 1998. Visiting 7th Circuit Senior Judge Richard D. Cudahy traced recent evolutions in copyright law as it relates to music, noting that for many years, the law granted protection only for public performances, and provided no protection at all for owners of the copyrights to sound recordings. In 1971, Cudahy said, Congress passed the Sound Recording Amendment, granting limited copyright in the reproduction of sound recordings in an effort to combat recording piracy. “However, there was still no right to public performance of that sound recording,” Cudahy noted. Although radio stations routinely pay copyright royalties to songwriters and composers — through associations like the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI) — for the privilege of broadcasting recorded performances of popular music, they do not pay the recording industry royalties for that same privilege, Cudahy said. The system worked well until about 10 years ago because “the recording industry and broadcasters existed in a sort of symbiotic relationship wherein the recording industry recognized that radio airplay was free advertising that lured consumers to retail stores where they would purchase recordings.” But the 1990s “brought significant technological change,” Cudahy said, when advancements in digital-recording technology created the possibility that consumers would soon have access to services whereby they could pay for high-quality digital audio transmissions or even pay for specific songs to be played on demand. The recording industry, Cudahy said, “was concerned that the traditional balance that had existed with the broadcasters would be disturbed and that new, alternative paths for consumers to purchase recorded music (in ways that cut out the recording industry’s products) would erode sales of recorded music.” Congress responded by passing the DPRA, which added a digital audio transmission performance right to the list of protectable rights. But, the DPRA also exempted noninteractive, nonsubscription broadcast transmission. That law, too, proved inadequate, Cudahy found, because technology continued to advance, and the Internet soon became a viable medium over which to transmit, in real time, sound recordings. In 1998, Congress amended the DPRA by passing the DMCA, which specifically addressed Internet streaming. In March 2000, the Recording Industry Association of America petitioned the Copyright Office for a rulemaking to clarify whether AM/FM webcasting — the simultaneous Internet streaming by radio broadcasters of their AM/FM broadcast programming — was a “nonsubscription broadcast transmission” that was exempt from the digital audio transmission performance right. When the Copyright Office sided with the RIAA, the National Association of Broadcasters responded by filing suit in U.S. District Court to challenge the rule. Schiller upheld the rule, finding that “the Copyright Act evinces Congress’ intent to empower the Copyright Office to interpret the statute.” 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, 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.” Now the 3rd Circuit has ruled that Schiller got it right because the rule is consistent with, and effectuates the goals of, the most recent statutes. “The exemptions the DPRA afforded to radio broadcasters were specifically intended to protect only traditional radio broadcasting, and did not contemplate protecting AM/FM webcasting,” Cudahy wrote in an opinion joined by 3rd Circuit Judges Jane R. Roth and D. Brooks Smith. “The DMCA’s silence on AM/FM webcasting gives us no affirmative grounds to believe that Congress intended to expand the protections contemplated by the DPRA,” Cudahy wrote. The broadcasters, Cudahy said, “must show something more than congressional silence to argue convincingly that Congress intended to lump AM/FM webcasting with over-the-air broadcasting.”

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