ONLINE DIGITAL MUSIC PLANS COULD NEED COPYRIGHT ACT REVISION

At issue in the hearing was Sec. 115, which deals with licensing and royalties for music. Two key difficulties were addressed, with licensing from music publishers at the center of the debate: (1) Some argue that royalties in a digital age should be set as a percentage of revenue rather than at a fixed rate per song, to ease tracking and collection. (2) There’s some dispute about whether downloading services require a license both for reproduction and performance.

Two trade group representatives not always in agreement on copyright licensing issues -- Digital Media Assn. (DiMA) Exec. Dir. Jonathan Potter and RIAA Pres. Cary Sherman -- told the subcommittee that basing royalties on a percentage of revenue would improve the system and make available more digital online offerings. It’s done in Europe, Sherman said, so “why can’t we” do it. He said he hoped such a change could occur through negotiations, but “if we cannot get there on our own we may be back for your help” in Congress.

Music publishers don’t see a need to shift to a percentage- of-revenue system, said Carey Ramos, outside counsel for the National Music Publishers Assn. That system would hurt music publishers if the downloading service treats “music as a loss leader,” he said. “It’s no secret that Apple’s primary interest is selling computers and iPods… that’s a wonderful business model, but it may not be a good business model for songwriters who don’t sell computer equipment.” He defended the current system of licensing for individual performances or replication: “Computers can count the number of times a song is downloaded… I think it’s an easily audited system.”

Potter again expressed frustration that downloading services often find themselves obtaining both a performance and replication license, though the U.S. Copyright Office has said that isn’t necessary. He said that when negotiating with the Harry Fox Agency, which represents a significant percentage of music publishers, “some of our members have agreed to pay double royalties as litigation insurance.” Peters, questioned for clarification by House Internet Caucus Co-Chmn. Boucher (D-Va.), confirmed that “we don’t believe that’s a separate economic activity.” She said it’s hard to rationalize a performance royalty for a download, since the transmission itself is required for the user to record a copy. Ramos said those issues can be resolved through negotiation rather than new legislation.

Potter was very supportive of legislating, however. He outlined his dream list of potential bill provisions: (1) Modernizing electronic search options to track down license holders, with a safe harbor for those who can demonstrate that they pursued those search options. (2) Modernizing licensing terms to include server and network copies. Boucher raised this issue, noting that a download service might have as many as 1,000 copies of a song in various forms in caches to facilitate downloading. (3) Elimination of double licensing, another issue that concerned Boucher. (4) A percentage-of-royalty option. (5) A “statutory blanket license for the entire music repertory,” as not all music is represented by an agency. Potter called the current royalty system “dysfunctional.”

Potter said Sec. 115 is a “strict liability statute, [with] very expensive statutory damages.” Downloaders are careful not to violate Sec. 115, he said, but “if you're wrong, you are cold- cocked out of business. It’s true gun-to-the-head licensing.” Sherman said RIAA’s deal with Harry Fox 2 years ago helped facilitate the creation of download services, but “we're just not getting licensed what we need.” Music licensing involves rights for multiple parties such as performers and songwriters, which historically has made it more complex than movie licensing, where all rights often are housed within one studio.

There was discussion about the need for record labels to have an antitrust exemption in order to offer download services. Sherman thanked the House for including such an exemption in a Copyright Arbitration Royalty Panel (CARP) reform bill that passed the House last week. In that debate, House Judiciary Committee Chmn. Sensenbrenner (R-Wis.) and others cited the bungled webcasting CARP as a reason for legislation. But the Webcasters Alliance last week called for an ethics investigation of Sensenbrenner regarding what the group of small webcasters said were his close ties to RIAA, including a trip to Asia in 2003 financed by the organization. The clause added to the floor version of the CARP bill would expand the antitrust exemption from webcast licenses to all mechanical licenses, echoing language Senate Judiciary Committee Chmn. Hatch (R-Utah) has introduced in a separate bill, S-1933.

Peters was noncommittal on exactly what statutory solutions would be appropriate. For example, when asked her position by Chmn. Smith (R-Tex.) on the percentage-of-revenue issue, she said “I don’t have a preference one way or the other.” She did see room for improvement, however, and in her written testimony said she could see an argument for eliminating Sec. 115 entirely.