No one ever claimed that music royalties are easy to understand, especially in the digital age when nice, neat definitions that had grown up over many years in the physical world no longer necessarily make sense. The complexity of the world of digital music licensing is clear from many sources, but the Commerce Department’s “Green Paper” on Copyright Policy, Creativity, and Innovation in the Digital Economy does a good job discussing many of the music royalty issues that have arisen in the last 20 years that make copyright so confusing for professionals, and pretty much incomprehensible for those not immersed in the intricacies of copyright law on a regular basis. The Green Paper discusses some of the issues in music policy that make this area so confusing, and highlights where interested parties and lawmakers should focus their efforts to reform current rules to make them workable in the digital age. The Paper also discusses other areas of copyright policy that we will try to address in other articles.  You can find the Green Paper here (though note that it is about 120 pages and will take some time to download).

One of the most controversial issues that it addresses is the concept of a general performance right for sound recordings. As did Register of Copyrights Maria Pallante in the speech we summarized here, the Commerce Department puts the current administration on record as supporting the creation of such a right – a right that has not existed in the United States, except for a limited sound recording performance royalty for performances by digital audio companies like webcasters (see our summary of the royalty rates paid by different types of Internet Radio services here) and satellite radio (see our summary of the royalties to be paid by Sirius XM under the most recent Copyright Royalty Board decision). While the most controversial aspect of the creation of a broad sound recording performance royalty has been in connection with the extension of that royalty to broadcasters, the adoption of a general royalty, as advocated by the Green Paper would extend payment obligations to others who publicly perform sound recordings – including bars, restaurants, stadiums and other retail establishments.

All of these businesses currently pay royalties for the public performance of musical compositions (the royalty going to the writers of the words and music of a song, a copyright usually held by a publishing company), usually collected by a performing rights organization - in the US, those PROs being ASCAP, BMI and SESAC. The collection of these royalties has been contentious from time to time, causing Congress to include in copyright laws exemptions for small businesses with less than a statutorily set square footage who play music on a consumer-type device. These small businesses probably have no idea that the issues raised in the Green Paper or in the recent speech by the head of the Copyright Office are under consideration. But, should any legislation be introduced to enact such a law, there would no doubt need to be much discussion of these kind of issues.  In addition, there will be many discussions of the issues raised by the broadcast performance royalty (see, for instance, out discussion of those issues here and here). While there have been rumors that Congressman Mel Watt of North Carolina planned to introduce some sort of legislation on the sound recording performance royalty before Congress’ August recess, it did not happen. While the bill may be introduced after the recess, it is as yet unclear as to exactly what the bill will cover.

The Green Paper also raises other issues. Almost in passing, it discusses the issue of the fairness the current sound recording performance royalty on digital services, where different standards of determining the amount of the royalty apply to different digital services, resulting in vast disparities in the amounts that such services pay. Sirius XM and digital cable radio services like Music Choice will end up paying in the range of 10% of their revenues under the most recent Copyright Royalty Board decision, webcasting services pay significantly more. Pandora has, by various public accounts, been paying 50% of its revenues for music royalties, the bulk of which have gone for the sound recording royalty. Other webcasters, who have been less successful at monetizing their operations, reportedly would pay far more than that under the rates set by the CRB. These disparities were addressed by the Internet Radio Fairness Act introduced in the last Congress, which never moved to a committee vote. The Green Paper expresses no opinion of the issues raised in that bill, just saying that the issues need to be examined.

The Green Paper discusses other issues that relate to the question of when various rights of a copyright holder are implicated by a digital transmission. The various rights held by a copyright owner are pretty easy to discern in the analog world. A public performance is made by playing music in public. A reproduction is made when a song is recorded or when the recording is copied by the making of CDs or tapes of that song. Distribution occurs when the recording is sold or given away. A derivative work is made when someone takes a song and changes it, for instance by giving it new lyrics. All of these are rights held by the copyright owner.

In the digital world, these rights get muddled. When is there a public performance and when is there a reproduction and distribution of a song? The Green Paper discusses certain cases that have held that there is a reproduction anytime that a digital copy of a song is made, even if that copy exists only for a short period of time as part of a digital transmission. But, the Green Paper recognizes that there are questions of whether each such reproduction should trigger a royalty. For instance, should a buffer or RAM copy of a song that exists for only a few seconds as part of a digital Internet Radio transmission give rise to a royalty obligation at all? Currently, Section 112 of the Copyright Act assigns some value to such copies (calling them “ephemeral” copies), but the rights are usually paid in a bundle with the Section 114 rights to the public performance. Should they even be considered to be separate rights, or are they really just part of the digital public performance right?

While it might look like the rights should be considered part of the public performance right in the case of an Internet Radio service, the issue becomes murkier when you start to look at other on-demand streaming services, like a Spotify, Rdio or Rhapsody, where a user can play a song on demand. While the song is streamed to the user like a public performance, the use looks more like a reproduction (as the consumer has the ability to replay the song as many times as they want, as if they owned a record) than like a public performance, where the song is played and then gone.

Part of the problem with clarifying the definitions in a digital world is that different groups tend to collect for different rights. While one might just say “who cares” whether the digital transmission of a song is a performance or a reproduction, it becomes a real issue when the payments tend to go to different collecting societies, organizations or companies, none of whom want to give up their right to get a piece of the action. So clarifying the rights in a digital world is not easy.

The Green Paper even addresses the issue of "remixes" or what others may think of as "sampling" or “mash-ups” – taking bits and pieces of songs and using them to create new works. Are these derivative works, where permission of the copyright holder must be secured before they are used? Or are they sometime a “fair use”, making a transformation of the original work into something new that should not require the copyright holders permission?  Or should permission be obtained through some sort of statutory license (i.e. a license which the copyright holder cannot refuse to give, for which the user must pay some specified royalty rate set by the government)?

The Green Paper raises many other issues about music and other copyright matters. The whole music rights area is so complex that the typical consumer does not know whether what they are doing is subject to the copyright laws.  If what they are doing entails the need to get permission under the copyright laws, how do they get such rights? These are not easy questions.  The Green Paper does a good job of raising many of the issues, but it does just that – raise the issues. The much more complex question is how the issues that have been raised should be resolved. While there have been some discussions of copyright issues in Congress recently, and some suggestions that more hearings are coming, this is an incredibly complex area, with lots of interested parties often with disparate interests. So, even though these difficult questions cry out for clarity, don’t expect any easy answers to emerge quickly.