Music Licensing Takes Center Stage at Congressional Hearing

The House Judiciary Committee Subcommittee on Intellectual Property, Competition and the Internet held a hearing on music licensing today at 11:30EST. The hearing focused on recent proposed legislation that concerns internet radio royalties. Pandora CEO Joseph Kennedy, National Association of Broadcasters spokesman Bruce Reese, SoundExchange President Michael Huppe, and accomplished producer Jimmy Jam, appearing on behalf of the Recording Academy testified. Economist Dr. Jeffrey A. Eisenach and venture capitalist David B. Pakman joined them as witnesses in front of the Committee.

The copyright in a sound recording — as opposed to the separate and distinct copyright in an underlying musical composition — has, since 1995, included a limited public performance right for digital audio transmissions. Congress created a compulsory license for certain performances of sound recordings, most notably for webcasting. The rates for these licenses, if voluntary negotiations fail, are set by a government agency — at first, the ad hoc Copyright Arbitration Royalty Panel, and, since 2004, a standing Copyright Royalty Board consisting of three Copyright Royalty Judges.

Since the creation of the compulsory license for webcasting, there have been three rate-setting proceedings. The first, Webcaster I in 2002, rejected a “percentage of revenue” royalty sought by many webcasters and set a “per performance” rate. Many smaller webcasters immediately opposed the determination and sought relief from Congress, which passed the Small Webcaster Settlement Act of 2002 (SWSA). The Act sought to foster further negotiations for agreeable rates. Such agreements were reached, setting rates through 2005.

In 2004, Congress passed the Copyright Royalty and Distribution Reform Act, which replaced CARP with a Copyright Royalty Board. This Board convened Webcaster II in 2006, which would cover rates from 2006-2010. A determination reached in 2007 resulted in a similar turn to Congress. Congress responded with the Webcaster Settlement Act of 2008, largely similar to (SWSA), which was extended by a subsequent Webcaster Settlement Act of 2009. The result was a number of settlements covering nearly all webcasters for royalty rates through 2015. Webcaster III, covering the few webcasters who had not opted into such settlements, for rates through 2015, concluded in 2009, but was vacated this past summer after the DC Circuit Court ruled that Copyright Royalty Judges were unconstitutionally appointed.

With the next rate proceeding for webcasters little more than a year away, legislative proposals for reconfiguring the rate making process have already begun to appear.

 The Internet Radio Fairness Act, introduced in the House by Rep. Chaffetz and in the Senate by Senator Wyden, would, among other things, change the standard used by the CRB in setting rates from the current “willing buyer/willing seller” standard to the multi-factored “801(b)” standard currently used to set rates for pre-existing satellite and subscription services like SiriusXM Radio. Rep. Nadler has also introduced the Interim FIRST Act, which seeks to do the opposite: move all current rate proceedings under the “willing buyer/willing seller” standard.

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