Outline & Summary of the Digital Performance Right

January 1, 2000


Neil J. Rosini

In Sound Recordings Act of 1995 as Amended by the Digital Millennium Copyright Act of 1998 -- --creates a public performance right in sound recordings limited to certain digital transmissions and a compulsory license for digital phonorecord delivery


1. Background

a. Until February 1, 1996, owners of sound recordings enjoyed no exclusive right of public performance.

b. The Act is intended to protect economic interests of owners of sound recordings in the face of new technologies.

c. A new exclusive right was added in 1995 to Section 106: subsection 6 gives owners of sound recordings the right to “perform the copyrighted work publicly by means of a digital audio transmission.”

d. Section 114 was amended in 1995 to add the exclusive digital audio transmission right to the exclusive rights of owners of sound recordings, subject to various exemptions and other limitations on the scope of those exclusive rights.

e. Section 114 was further amended in 1998 to eliminate the exemption for certain noninteractive nonsubscription transmission services, thereby requiring many webcasters to obtain licenses who were not clearly required to do so before; however, new statutory licenses were made available for “eligible” noninteractive nonsubscription transmissions.

2. Scope of the Act

a. The exclusive digital performance right applies only to:

* transmissions (i.e., not to public performances by means of CD or digital audio tapes; or to public performances in restaurants, concert halls and hotels);

* sound recordings (i.e., not to audiovisual works or even sound tracks from audiovisual works); and

* digital public performances (i.e., not to analog formats like AM or FM radio).

(Sections 101; 106(6); 114(j))

b. After exemptions are taken into account, the principal accomplishments of the statute – as amended in 1998 – are to require a license for the right to make a digital transmission of a sound recording by means of (i) interactive services (i.e., the recipient may not receive a transmission of a program specially created for the recipient or particular sound recordings, selected by or for the recipient) (114(j)(7)) such as “audio on demand,” “pay per listen” and the like; as well as (ii) as most kinds of noninteractive “subscription transmissions” (i.e., transmissions that are “controlled and limited to particular recipients, and for which consideration is required to be paid…to receive the transmission or a package of transmissions including the transmission”) (114(j)(14)); as well as (iii) most kinds of nonbroadcast, noninteractive “nonsubscription transmissions” (which by definition are transmissions which are not “subscription” transmissions and include all that are free of charge) (114(j)(9)).

3. Specific Exemptions (that remain after the 1998 amendments)

4. Certain types of digital audio public performances of sound recordings are explicitly exempt from the license requirement if they are not part of an interactive service (114(d)(1)):

* a radio broadcast that is nonsubscription (114(d)(1)(A); (j)(3),(9), (14));

* retransmission of radio broadcasts, even if by subscription provided certain criteria are met (114(d)(1)(B));

* simultaneous, retransmission if the original transmitter is licensed to publicly perform the sound recording and authorizes the retransmission (114(d)(1)(C)(iii));

* transmissions within or to a business establishment (114(d)(1)(C)(ii), (iv));

* certain other transmissions.

5. Statutory Public Performance Licenses

Certain other types of noninteractive digital audio transmissions of sound recordings, which are not exempt from the licensing scheme and require a license, are still subject to statutory (sometimes called “compulsory “) public performance licenses. This enables services offering certain subscription and “eligible” nonsubscription transmissions to obtain a license to perform a sound recording by digital means without a license from the copyright owner, provided the service complies with the statute’s requirements including payment of a statutory royalty (114(d)(2)). To be “eligible” a nonsubscription transmission must provide audio programming consisting at least in part of sound recordings – including radio retransmissions – and its primary purpose cannot be to sell, advertise or promote products or services other than sound recordings, live concerts, or other music-related events (114(j)(6)).

a. Transmissions are not subject to statutory public performance licensing unless the following conditions are satisfied:

* the transmission must not be part of an “interactive service” (114(d)(2)(A)(i);

* in any three hour period: no more than three different selections in total, or more than two selections transmitted consecutively, may be taken from the same album; or more than three selections transmitted consecutively, or four selections in total, may use the same featured recording artist or be taken from any compilation of recordings distributed as a set (114(d)(2)(B)(i), (C)(i); (j)(13)), subject to certain exceptions pursuant to the 1998 amendments for certain retransmissions on certain types of services (114(d)(2)(C)(i));

* the transmitting entity cannot publish or announce the titles of sound recordings or phonorecords to be transmitted in advance (114(d)(2)(B)(ii), (C)(ii)) subject to certain exceptions pursuant to the 1998 amendments for certain types of services (114(d)(2)(C)(ii));

* except in the case of a transmission to a business establishment, the transmitting entity cannot automatically and intentionally cause any receiving device to switch from one program channel to another (114(d)(2)(A)(ii));

* if information is encoded in a sound recording by the owner of copyright identifying the title of the recording, featured artists, or related information, such as the names of the underlying musical work and its author, such coding must be transmitted as well (114(d)(2)(A)(iii)).

b. Pursuant to the 1998 amendments, additional conditions apply to statutory public performance licenses for “eligible” nonsubscription transmissions (as defined above), and to subscription transmissions made by relatively new subscription services (i.e., noninteractive subscription services other than certain audio services making transmissions for a fee in the same digital transmission medium as of July 31, 1998, or – in the case of satellite digital audio radio services – licensed by the FCC on or before that date) (114(d)(2)(B), (C); (j)(10),(11)).

c. These additional conditions include:

* the transmission may not be part of an “archived program” of less than five hours duration, or more than five hours duration that is made available for a period exceeding two weeks (114(d)(2)(C)(iii)(I), (II)). (An “archived program” is a predetermined program available repeatedly on demand, performed in the same order from the beginning, subject to certain exceptions (114(j)(2));

* the transmission may not be part of a “continuous program” of less than three hours duration (114(d)(2)(C)(iii)(III)). (A “continuous program” is a predetermined program that is continuously performed in the same order and is accessed at a point in the program beyond the control of the transmission recipient (114(j)(4));

* the transmission is not part of another sort of identifiable program in which the sound recordings are rendered in a predetermined order, transmitted more than three times in any two-week period, publicly announced in advance – for programs of less than one hour – or four times in any two-week period, publicly announced in advance – for longer programs; subject to exceptions for certain retransmissions (114(d)(2)(C)(iii)(IV));

* the service does not knowingly perform sound recordings accompanied by visual images, in a manner suggesting a false association with the copyright owner or featured artist (114(d)(2)(C)(iv));

* the transmitting entity cooperates to prevent recipients from automatically scanning to select a particular sound recording to be transmitted to a recipient (114(d)(2)(C)(v));

* the transmitting entity does not encourage recipients to make phonorecords from transmissions and – on the contrary – uses its technology to limit unauthorized digital copying (114(d)(2)(C)(vi));

* the transmitting entity does not interfere with transmission of technical measures taken by copyright owners to identify or protect copyrighted works, subject to certain exceptions (114(d)(2)(C)(viii);

* other conditions as well.

d. Royalty rates for statutory public performance licenses are to be set by individual or collective negotiation (which is made exempt from antitrust laws by the Act), or arbitration, if necessary (114(e), (f)); payments may be deferred until royalty fees are determined (114(f)(4)); half of the proceeds from statutory licenses are to be distributed to performers on a per sound recording basis: featured artists get 45%; nonfeatured musicians get 2.5%; and nonfeatured vocalists get 2.5% (114(g)(2)(A),(B),(C)).

e. Owners of sound recordings and entities performing sound recordings may designate nonexclusive common agents to negotiate, agree upon, pay or receive statutory payments (also made exempt from antitrust laws by the Act) (114(e)(1)).

6. Voluntary Public Performance Licenses

A subscription transmission that is not exempt from the Act and does not satisfy all of the conditions for a statutory license, including any interactive digital audio transmission, must be licensed through a voluntary grant – assuming the copyright owner is willing – in order to avoid copyright infringement of the sound recording being digitally performed.

a. To prevent owners of sound recordings from wielding too much power in the granting of exclusive interactive licenses to their property: no exclusive license to an interactive service can exceed 12 months, unless the licensor owns 1000 or fewer copyrights in sound recordings, in which case the limit is doubled to 24 months and license terms must be separated by 13-month intervals (114(d)(3)(A)). This rule too has two exceptions: the limits do not apply when the licensor licenses at least 5 interactive services, with each license covering at least 10% of the licensor’s sound recordings licensed to interactive services, but no fewer than 50; and the limits do not apply when the sole purpose of the license is to promote distribution or performance of a sound recording and 45 seconds or less are used (114(d)(3)(B)).

b. Licenses of public performance rights in sound recordings to interactive services specifically do not excuse the services from obtaining licenses to perform the underlying musical compositions (114(d)(3)(C)). (The same might be said of all licenses to perform sound recordings.)

c. To ensure even-handedness by a copyright owner that owns an interest in an affiliated noninteractive digital audio transmission service, licenses to unaffiliated parties must be on “no less favorable terms” to those granted to such affiliated entities, assuming the material terms are similar (114(h)(1)) – except in the case of licensees that are interactive services and in the case of promotional licenses for use of 45 seconds or less, where such even-handedness is not required (114(h) (2)).

d. Copyright owners of sound recordings may designate common agents to grant licenses and receive and remit royalty payments unilaterally, not acting in concert with other copyright owners of sound recordings. (114(e)(2)(A)).

e. Similarly, entities performing sound recordings may designate common agents to act on their behalf to obtain licenses and collect and pay royalty fees provided that each entity shall determine the royalty rates and material license terms without acting in concert with other entities performing sound recordings. (114(e)(2)(B)).

7. Other Provisions

Pursuant to the 1998 amendments, a transmission organization with a statutory license to transmit a public performance of a sound recording may make one free “ephemeral” phonorecord of the sound recording (112(a)(1)) and may obtain a statutory license to make one additional “ephemeral” phonorecord for which a royalty must be paid (112(e)). Both “ephemeral” phonorecords may be used solely by the transmitting organization in connection with its own licensed transmissions, must be destroyed within 6 months from the date of first transmission, and are subject to other restrictions (112(a),(e)). Royalty rates for this statutory license are to be set by voluntary negotiation or arbitration if necessary (112(e)(3-8)).

a. The new public performance right does not affect rights of sound recording copyright owners to control reproduction of their records, to create derivative works, or to distribute their recordings (114(d)(4)).

b. License fees paid to sound recording owners under the sound recording public performance right, shall not be taken into account in any administrative, judicial, or other governmental proceeding to set or adjust the royalties payable to copyright owners of musical works for the public performance of their works – i.e., payments to music publishers should not be reduced as a result of payment of fees to owners of the sound recordings (114(i)).

II. THE COMPULSORY MUSICAL COMPOSITION LICENSE FOR DIGITAL PHONORECORD DELIVERY. (These provisions were not changed by the 1998 amendments.)

1. The Digital Performance Right in Sound Recordings Act of 1995 Amends the Rights of Owners of Musical Compositions, Too

Though the name of the Act emphasized the changes related to public performances of sound recordings, the Act also included substantial changes to the compulsory license provisions of the Copyright Act that apply to the reproduction and distribution of underlying musical compositions embodied in such sound recordings.

a. Specifically, the Act amends Section 115 of the Copyright Act to include “digital phonorecord delivery” among the means of making and distributing phonorecords embodying musical works that qualify for the compulsory mechanical license (115(c)(3)(A); (d)). “Digital phonorecord delivery” is defined as “the delivery of a phonorecord by digital transmission of a sound recording which results in a specifically identifiable reproduction by or for any transmission recipient.” Again, the aim of the Act is to anticipate the effect on rights holders and rights users of a new technology: the distribution of phonorecords by telephone lines, cable, satellite, and other sources of digital transmission.

b. The license may be obtained by the digital transmission service or by the record company licensing the delivery (115(c)(3)(H)(i)).

c. This reproduction/distribution license does not apply to a real-time noninteractive subscription transmission where only a performance of a sound recording takes place – i.e., “where no reproduction … is made… in order to make the sound recording audible” (115(d)).

d. The same basic conditions applicable to “traditional” compulsory licenses still apply: the musical work to be compulsorily licensed must be non-dramatic and must have been distributed previously in phonorecords to the public in the U.S. under the authority of the copyright owner (115(a)(1)).

2. Royalties

3. New transmission-specific royalty rates are to be set by individual or collective negotiation (which is made exempt from antitrust laws by the Act), or arbitration, if necessary (115(c)(3)).

4. Miscellaneous Provisions

The licensee of the compulsory license must include in all digital phonorecord deliveries, information encoded in the sound recording identifying the title, recording artist, and related information such as the names of the underlying musical work and its author (115(c)(3)(G)).

a. Contractual “controlled composition” clauses – which require recording artists who write their own songs to license mechanical rights for less than the statutory rate – are rendered unenforceable when recordings are distributed by digital phonorecord delivery with two exceptions: a grandfather clause (with June 22, 1995 as the operative date) and an exception for certain agreements with singer-songwriters who retain the right to grant licenses to their songs (115(c)(3)(E)).

b. Record companies will not be held liable to owners of copyrights in underlying musical compositions, if they (the record companies) fail to take legal action against unauthorized digital phonorecord deliveries (115(c)(3)(I)).

c. Neither manufacturers and distributors of audio recorders and blank “recording [media]” nor consumers may be sued for infringing digital phonorecord deliveries; only the persons responsible for the delivery may be sued (115(c)(3)(J)).