The U.S. Court of Appeals for the Second Circuit, affirming a district court, found that a download of a musical work does not constitute a public performance of that work. In that same case, the court vacated the district court’s assessment of license fees. United States of America v. American Society of Composers, Authors and Publishers (ASCAP), Case Nos. 09-0539; -0542; -0566; -0692; -0572 (2d Cir., Sept. 28, 2010) (Walker, J.).

ASCAP licenses non-dramatic, public performance rights in copyrighted musical works and almost half of all the musical works played online. Yahoo! and RealNetworks each sought and received separate licenses from ASCAP, granting each the right to perform all of the works in the ASCAP repertory for a single fee, i.e., a fixed fee that does not change based on the volume of the music actually used. The Yahoo! and RealNetworks licenses provide their subscriber/internet users with music and music videos "on demand" and make available to users performances of music, music videos, television programming and similar content. Yahoo! and RealNetworks also offer users the opportunity to download recordings of musical works. Each download is a transmission of an electronic file containing a digital copy of a musical work that is sent from an online server to a local hard drive.

ASCAP maintained that the digital downloads of musical works are "public performances," and subject to an additional license fee, arguing that the downloads "transmit or otherwise communicate a performance" within the definition of "public performance" found in §101 of the Copyright Act. Under their existing licenses, Yahoo! and RealNetworks already pay copyright holders of musical works for licenses to distribute and reproduce their work online. They argued that paying a separate fee to the copyright holder for public performance would force them to pay two separate licenses for the same act to the same copyright holder and that the additional license fees could require them to pay up to $100 million in additional royalties.

Following a 2001 revision to a 1941 consent decree in an antitrust action brought against ASCAP, the U.S. District Court for the Southern District of New York (SDNY) has served as the "rate court" for ASCAP; i.e., parties may ask the SDNY to set a fair rate for a license to publicly perform copyrighted works. The district court issued three such rulings that are pertinent here—in 2007, 2008 and 2009—each time concluding that a download of a digital file containing a musical work does not constitute a public performance. In its 2008 decision, the SDNY also created a fee formula (multiplying a royalty rate by the percentage of revenue attributable to the performance of music) for the blanket licenses payable to ASCAP by Yahoo! and RealNetworks. Using its formula, the district court applied a royalty rate of 2.5 percent of total revenues, a rate proposed by neither side, to the dispute. ASCAP appealed the ruling on public performance, and Yahoo! and RealNetworks cross-appealed the payment formula ruling.

The 2d Circuit affirmed the district court ruling on the separate "performance" royalty issue, finding that the Copyright Act’s definition of a "public performance" does not include digital downloads of musical works in which no performance is perceived during the data transfer. Rather, the court noted that under the §101 definition, "transmitting a performance to the public" refers to the performance created by the act of transmission, not simply transmitting a recording of a performance. The 2d Circuit noted that digital downloads differ from stream transmission of musical works—which all parties agree constitute public performances—because this transmission "like television or radio broadcast, is a performance because there is playing of the song that is perceived simultaneously with the transmission." In contrast, a digital download does not "immediately produce a sound," and only after a file has been successfully downloaded to a user’s local hard drive can he or she perceive the performance by playing the downloaded song.

The court remanded the calculation of a reasonable fee, finding that the district court did not adequately support the reasonableness of its method of calculating the 2.5 percent royalty rate. The 2d Circuit noted that in calculating any fee formula, the district court must "strive to use measurements that are as consistent and as precise as practicable."