Streaming Audio License Fee Requirement Upheld in Bonneville

Traditional copyright law granted public performance license fees to songwriters and composers, but not to the copyright owners of the recording itself, the recording industry. The recording industry was satisfied with receiving no royalties for radio airplay until about ten years ago, because it viewed radio airplay as free publicity. It received compensation indirectly from the sale of records, tapes, and compact discs in stores. About ten years ago, the widespread availability of digital recording and distribution techniques raised the possibility that consumers would listen to music through interactive services, thereby cutting out the recording industry as a middleman and lowering prices for consumers.In response, Congress passed the Digital Performance Right in Sound Recordings Act in 1995, which gave copyright owners of sound recordings the exclusive right to perform the work (1) publicly by means of (2) a digital audio transmission. Such a law would impact the radio industry if they ever converted to digital transmission, so Congress carved out three exceptions for “ non-interactive, non-subscription” performances. The idea was to allow a digital version of AM/FM radio stations, but nothing more convenient to consumers would be allowed without licensing fees.

Three years later, webcasting—the broadcasting of music over the Internet—was on the horizon. Anyone with a fast network connection could convert their own compact discs into MP3 format and start their own digital “radio” station. Webcasting fell within the radio industry exception; there was no requirement that “digital radio” be broadcast over the air rather than the Internet. The recording industry again went to Congress, obtaining provisions in the Digital Millennium Copyright Act clamping down on webcasters.

Only of the three “non-interactive, non-subscription” exemptions remained after the DMCA, the one for “broadcast transmissions.” It was unclear whether this exemption could apply to traditional AM/FM radio stations simulcasting their traditional programming over the Internet. The Copyright Office issued a regulation stating that AM/FM simulcasting was not a “broadcast transmission.” The National Association of Broadcasters (N.A.B.) sued the U.S. Copyright Office seeking to overturn the regulation. The district court in the Eastern District of Pennsylvania granted summary judgment for the Copyright Office. The N.A.B. appealed to the Third Circuit, which affirmed the grant of summary judgment.

The Third Circuit agreed with the Copyright Office. Part of the statute defined a “broadcast transmission” as one made by a terrestrial broadcast station licensed as such by the F.C.C. The court then addressed whether a “broadcast station” was a broadcasting entity, or the facilities actually licensed by the F.C.C. for AM/FM transmission. That is, does “broadcast station” mean a broadcasting company owning the license, building, transmission equipment, and so on, or does it merely mean the transmission equipment? The court considered other instances of the word “broadcast station” in Title 17, and concluded that it made more sense when interpreted to mean the facilities licensed by the F.C.C., rather than the business entity owning the facilities. Because the F.C.C.-licensed facilities do not include the computers used for webcasting, webcasting is excluded from the broadcast exemption.

The court also had two other arguments. The first is that the N.A.B. statutory construction did not put any limits on the number of “virtual” stations a webcaster could offer. The court believed each radio station should be limited to one webcasting station to preserve the intent of the statute. Additionally, the court believed that it would be unfair to not allow a third-party webcaster (the court used the example of Yahoo!) to transmit “the exact same AM/FM programming” royalty-free, while giving the exemption to the webcasting radio station. The court was not persuaded by the N.A.B.’s argument that it was equally nonsensical to exempt on-air broadcasts from the royalties, while requiring “the exact same” radio station to pay royalties on “the exact same AM/FM programming.”


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