By Seyamack Kouretchian

National Law Journal

October 23, 1995

There is piracy on the information highway, and the recording industry apparently is being looted. The online community is digitizing, copying and replaying musical performances without paying royalties to recording artists, publishers and labels. And although the recording industry generates billions of dollars of revenue per year,1 it may not have the power to stop this high-tech assault.

At the heart of the battle is the Copyright Act of 1976 (Copyright Act).2 Attempting to apply its tangible-based principles upon a world existing entirely within a string of ones and zeros can prove as difficult as playing catch in a black hole in space. This is because, to a large and very real extent, "[copyright] is a Gutenberg artifact."3 Before a new and more encompassing piece of legislation is adopted4, however, it is important that intellectual property practitioners attempt to manage the interim copyright chaos and help their copyright clients live with the cyberspace dilemma.

Under the terms of the Copyright Act, the owners of a musical composition are exclusively entitled to license public performances of the subject music.5 To "publicly" perform a work means "to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered...or to transmit or otherwise communicate a performance or display of the to a place [open to the public]...by means of any device or process"6 . To "perform" a work means, among other things, to render it, "either directly or by means of any device or process."7 Referred to as a "performance right", this copyright interest requires that practically any broadcast or live performance of a musical composition be licensed by the copyright owner in the musical composition (publisher).

Performance societies like the American Society of Composers Authors and publishers (ASCAP), Broadcast Music Inc. (BMI), and SESAC (formally known as the Society of European Stage Authors and Composers) grant these licenses and distribute the paid "performance royalties" to their member publishers. Traditional "performance right" licensees include Broadway playhouses, bars,

clubs, restaurants, stores, television radios, and radio stations. Not surprisingly, these performance royalties account for a good portion of an artist’s income. The Copyright Act also grants copyright owners of the musical composition "mechanical rights". "Mechanicals" are monies derived from the

use of the musical composition in "devices serving to reproduce the composition mechanically"8, such as through compact discs, cassette tapes, phono records.

In other words, publishers are also entitled to royalties for each duplication or copy made, for example, of a recording embodying their composition. Mechanical right licensing and royalty collection is done, in large part, by the Harry Fox Agency, Inc. (Fox Agency). Acting as a mechanical right clearinghouse, the Fox Agency is often trusted with the responsibility of auditing

record companies and assuring that the proper mechanicals are being paid.9 Mechanical right royalties collected by the Fox Agency are statutorily determined- the present "compulsory" mechanical license10 rate being the greater of 6.6 cents per song per record or 1.25 cents per minute per song per record.11

Finally, the Copyright Act also confers upon the publisher a variety of other income-deriving rights, such as the exclusive right to control the synchronization of a song with visual images12 and the exclusive right to print and distribute copies of a song as sheet music.13. These royalties are typically negotiated and paid directly by and between the television or film producers and the publisher or the major print companies and the publishers, as the case may be.

The application of these various copyright interests is easily accomplished in the tangible and analog world, where the implicated right is more readily and traditionally discernable. After all, it is not difficult to see that a radio broadcast requires a performance license, the pressing of record albums requires a mechanical license, and the use a song in a motion picture requires a performance and synchronization license. The Copyright Act is legislatively worded and judicially interpreted to apply to these tangible and analog situations.

In, however, the digital world of modems, multi-servers, and interactive on-demand downloading of bits of data, the delineation between these rights is blurred, if not entirely diluted. After all, the deceivingly simple act of surfing the Internet, finding a site containing a copy of your favorite song, and downloading a digital copy to your system arguably involves a performance and a duplication- all of which require a royalty or licensing payment. Conceptualizing the duplication and associated mechanical right is easy. From music rolls,14 a variety of instruments have been adjudged "mechanical devices" under section 115 of the Copyright Act, thereby requiring the payment of a mechanical to the copyright owner. It is likely that a court will also deem a computer hard-drive to constitute a "mechanical device" under the Copyright Act, since it is capable of reproducing the composition mechanically.

When attempting to apply these "mechanical right" principles to digitization, however, the difficulty is in determining which party is responsible for actually paying the royalty. According to the Copyright Act, the responsible party is that which actually reproduces the composition mechanically. In the digital world, it is unclear where the duplication has occurred. The musical composition, stored as data bits, resides dormantly within a server connected to numerous telephone lines. When an interested party desires a copy of the subject composition, they, using their computer, search the server and, upon finding the song they wish to copy, instruct their personal computer to retrieve a duplicate copy of the data bits residing on the target server. These data bits are then transmitted through the lines, ultimately arriving at the interested party’s computer, which then guides the bits to a storage compartment, like a hard-drive, floppy disc, or digital audio tape15. If it is determined that the composition has been duplicated by the server, then the server’s owner is responsible for the mechanical royalty payment. On the other hand, if it is determined that the duplication has taken place at the interested party’s computer, then the interested party is responsible for the mechanical royalty payment.16

Frank Music Corporation, the publisher of the Righteous Brothers' "Unchained Melody", has implicitly taken the position that a duplication has taken place at the server and, in an effort to establish precedent requiring the payment of mechanicals for duplications of musical compositions made via computer, modem, and multi-server, has initiated a class action suit in the Southern District Court of New York against CompuServe. Under this suit, which was organized by the Fox Agency, the plaintiffs seek an order both moving the offending files offline and for monetary damages.17 If CompuServe is found liable, publishers around the world will start looking for royalty payments.

Aside from this "mechanical" aspect, the posting and transfer of musical compositions by computer may also implicate performance rights, thereby requiring the payment of a performance royalty. Although it is fairly easy to apply performance rights to the analog world where traditional broadcast industries, such as radio and television, transmit the music to the listener in real time as a simultaneous performance of a prerecorded work, it may require an exercise in cerebral gymnastics to apply performance rights to the digital world.

After all, the seemingly dormant residency of a data file on a server is not quite analogous to a live concert performance. It is, however, analogous to the recording of a song from the radio- the only difference being that, in the computer world, all of your favorite songs are being "played" all day long. Under this paradigm, a performance right is implicated each time a particular musical composition is digitally retrieved by a system user.

Courts have applied performance rights to the electronic world. For example, they have found performance rights to be implicated by the use of compositions in video games despite the fact that the sequence of images and sounds varies with each play.18 Courts have also applied performance rights to the use of compositions on circuit boards.19 The application of performance rights to on-line computing is, therefore, an arguably natural progression. Although there is no case specifically addressing this issue 20, performance right societies and on-line system operators have already begun developing a course of conduct that may, like box-top or shrink-wrap software licenses, become the accepted industry standard. Performance right societies like BMI and ASCAP have begun enforcing their rights in cyberspace by demanding and receiving licenses from on-line system operators using their repertoire over the Internet. This seemingly practical resolution of the application performance rights to the on-line community has apparently helped avoid precedent-setting lawsuit.

Another issue that intellectual property practitioners will need to address when examining the copyright dilemma is the reproduction right exclusively reserved by the copyright owner in the sound recording.21 The Copyright Act defines "sound recording" as "works that result from the fixation of a series of musical, spoken, or other sounds, but not including the sounds accompanying a motion picture or other audiovisual work, regardless of the nature of the material objects, such as disks, tapes, or other phono records, in which they are embodied."22 When, therefore, a sound recording is reproduced or copied, a license will need to be obtained from the copyright owner. This will usually accompany a royalty payment.

In the on-line world, it is not difficult to conceptualize how this right would be implicated. By transferring a digitally-stored music file from one server to another computer, the sound recording is quite arguably copied. This becomes more apparent when the digital copy is transmitted through high-quality audio speakers. Although this right is separate from the various synchronization, performance, and mechanical rights held by the copyright owner in the musical composition, it is equally implicated when the subject recording is transferred over the Internet. This is because the recording includes both the underlying composition and the artist's recorded v ersion. One cannot, after all, listen to a song without hearing the recording and composition at the same time. For this reason, it would seem that an owner of the copyright in the sound recording is likewise entitled to remuneration for the on-line duplication of their recording. This leap of logic, however, has not been made to date by any court.

Although it presently takes fifty minutes to transfer one minute of CD stereo quality audio via a 14.4 kilobit -per-second modem, the day will soon be here when an entire album can be transferred in seconds. When this happens, the face of the recording industry will change, as will the royalties received by artists, publishers, and labels. To manage the interim chaos until the legislature and/or courts are able to resolve the resulting overlap and conflict, conservative logic would seem to dictate that the on-line transfer of data bits comprising musical compositions and sound recordings as be viewed as duplications and performances requiring a mechanical and performance license from the publisher of the musical composition and a duplication requiring a license from the owner of the sound recording.

* Seyamack Kouretchian is a New York and California attorney specializing in high-technology start-up companies and entertainment law.

1. 1. In 1992, worldwide sales of prerecorded music totaled $28.7 billion. Dominic Pride & hom Duffy, Modest Growth Keys Global Mart, Billboard, June 19, 1993, at 1, 1 (reporting that worldwide record industry federation figures showed that global music sales increased to $28.7 billion in 1992). In 1993 alone, domestic music audio and video sales accounted for $10 billion alone. Chuck Philips, '93 Sales Break sound Barrier, L.A. Times, Feb. 25, 1994, at F1 (reporting sales figures announced by the RIAA).
2. 2. The Copyright Act of 1976, Pub. L. No. 94 -553, 90 Stat. 2541 (codified as amended at 17 U.S.C. §§ 101-1010 (1988 & Supp. IV 1992 & 17 U.S.C.A. West Supp. 1994)).
3. 3. Nicholas Negroponte, Being Digital, Alfred A. Knopf, Inc., 1995, p. 58.
4. 4. Please see article on NII White Paper published elsewhere in this section.
5. 5. 17 U.S.C. § 106(4).
6. 6. Id.
7. 7. Id.
8. 8. 17 U.S.C. §115.
9. 9. Note, however, that most publishers license and receive their mechanicals directly.
10. 10. "Compulsory" mechanicals are available to anyone after, and only after, the publisher has already allowed the use of the record embodying the composition. See 17 U.S.C. §115(a)(I).
11. 11. This rate was established by the Copyright Royalty Tribunal which, as of 1993, was eliminated under the Copyright Royalty Tribunal Reform Act and replaced by the Copyright Arbitration Royalty Panel (CARP). Acting under the direction of the Library of Congress and the Copyright Office, it is expected that CARP will increase the compulsory mechanical rate.
12. 12. 17 U.S.C. § 106(1); and 17 U.S.C. § 114(b).
13. 13. 17 U.S.C. § 106.
14. 14. Standard Music Roll Co. V. F.A. Mills, Inc. (Cir.Ct.App.,3rd Cir. 1917) 241 F. 360.
15. 15. Please note that by the Audio Home Recording Act, (17 U.S.C. §1001-1010) Congress officially sanctioned non-commercial home taping of copyrighted sound recordings by imposing a royalty on the importation, manufacture, and distribution of home digital recording equipment (like digital audio tapes).
16. 16. It is important to note that the U.S. Supreme Court has held that consumers were not infringing copyrights in broadcast television programs by taping the shows and viewing them later. Sony Corp. v. Universal City Studios, (1984) 464 U.S. 417. This would appear to provide support for the argument that individuals engaged in the copying of data bits from servers are not infringing copyrights and, therefore, need not pay mechanical royalties.
17. 17. Of particular interest in this case is the fact that CompuServe's liability is being based upon the uploading and downloading of songs by third party system subscribers, not by CompuServe itself.
18. 18. Red Baron-Franklin Park, Inc. V. Taito Corp. (1989, CA4 Va) 883 F2d 275, 11 USPQ 1548, mod, reh den (CA4) 1989 US App LEXIS 19806 and cert den (US) 110 S.Ct. 869.
19. 19. Id.
20. 20. Note, however, that in Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552 (M.D.Fla. 1993), a district court recognized full copyright protection for digitized magazine pictures.
21. 21. 17 U.S.C. § 114(a).
22. 22. 17 U.S.C. § 101.

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