CMU Trends Labels & Publishers Legal

Trends: What is it about 1972?

By | Published on Tuesday 23 December 2014


So why, you might wonder, is the year 1972 currently so important in the US record industry? Well, because of the complexities of American copyright law. And ongoing disputes over what American copyright law says about sound recordings that pre-date 1972 could increase the royalty bills of services like Sirius XM and Pandora. But the precedents being set in court could also have wider implications on how public performance licensing works in the US.

The starting point of all this is the distinction between US-wide ‘federal’ copyright law, and state-level copyright laws across America.

When it comes to sound recordings, federal law only covers material released after 1972, which means that the copyright in recordings from before that date is regulated on a state-by-state basis, according to each state’s copyright rules.

Federal copyright law is unusual, certainly compared to the European system, in that it deprives the owner of sound recordings one of the common elements of copyright, the public performance right (what is often called the ‘neighbouring right’ in record industry).

Copyright law gives copyright owners a number of ‘controls’ over the content they own; in English law these controls are called the ‘acts restricted by the copyright’.

The controls vary from system to system, but commonly include the exclusive rights to copy, perform in public and adapt. Subject to a handful of exceptions, if anyone other than the copyright owner wants to copy, perform or adapt a creative work, they need the permission of the rights owner, who will usually charge for it. This is how copyrights make money.

The public performance right means that anyone wanting to perform a song or play a recording of a song in public needs a licence (or multiple licences, where there is both song and recording copyrights at play). And that requirement extends to shops, bars, clubs and any work place where music is played, as well as broadcasters who play music as part of their output. Public performance licences are usually obtained from the music industry’s collective licensing system.

Federal copyright law in the US pretty much follows this pattern except when it comes to sound recordings, where the public performance right is specifically excluded from the package, unless the public performance takes place via a satellite or internet-based channel, such as the Sirius network or Pandora. There are historic and global treaty reasons for this quirk.

This means that while shops, bars, clubs, work places and, most importantly, radio stations are obliged to get licences from the music publishers – who control the separate copyrights that exists in songs – they are not obliged to pay any royalties to the sound recording rights owners, aka the record labels. Which is why there is no direct equivalent of the UK record industry’s performing rights society PPL in the US.

Needless to say, the record industry doesn’t especially like this quirk of American copyright law, especially now that the labels are looking for every possible extra revenue stream to compensate for declining CD sales. And in most other recorded music markets public performance income has been growing in recent years.

So there has been much lobbying effort in recent times to bring the US copyright system in line with Europe on the public performance of sound recordings, though so far without result. The broadcasters – a strong lobby in America – will always argue that the labels get free promotion for their artists and records from airplay, and so shouldn’t expect to earn a royalty as well.

The satellite and online radio services aren’t that keen on the current system either. They argue that they compete head on with the traditional AM and FM broadcasters for listeners and advertisers, but have to pay a whole extra layer of royalties (ie to the labels), giving their terrestrial rivals a significant unfair advantage.

Occasionally Sirius and Pandora pretend they’d be happy with the system if the traditional broadcasters were saddled with the same recording royalty bills, but really they would like for their extra licensing obligation to be removed. “Think of all the promotion we provide the labels’ artists” they might muse.

On the flip side – and also unique to the US – while copyright law obliges Sirius and Pandora to get licences from the labels as well as the publishers, it also obliges the record companies to licence through the collective licensing system managed by SoundExchange.

Such so called ‘compulsory licences’ mean that labels can’t walk away from the negotiating table when agreeing terms with the satellite or internet radio services, weakening their hand considerably. In fact, with SoundExchange licenses the rates are set by the American copyright courts anyway.

As an aside, while the labels are obliged to licence Sirius and Pandora via SoundExchange, the satellite and digital service providers are not obliged to use that licence, and can try and cut deals directly with rights owners if they so wish.

Indeed, Pandora recently secured such a deal with Merlin, while iHeartMedia – the biggest traditional radio station operator in the US previously known as Clear Channel – has cut some direct deals with labels where it gets better rates for its growing online service iHeartRadio in return from providing rights owners kick-backs from its AM/FM business.

But in the main services like Sirius and Pandora are licensing sound recordings via SoundExchange, and therefore lobby whenever they can for the compulsory licence rates to be amended downwards (a rate review is ongoing as we speak), while also looking for technicalities that can save them money.

The main technicality is this: it is federal law that says that labels have a specific public performance right when it comes to satellite and online services. But federal law only relates to recordings released since 1972.

And while that’s the majority of recordings, there’s also a significant catalogue of tracks that pre-date that year, including the all important 1950s and 1960s rock n roll oeuvre. Presumably those recordings are not subject to the public performance control as described in federal law, and can therefore be used without licence, and without having to pay any royalties to the labels via SoundExchange. Or so said Sirius and, subsequently, Pandora.

Needless to say the labels do not concur, even though Sirius and Pandora are now both withholding royalties relating to tracks that predate 1972. But on what grounds do the labels make a case for royalties still being due on these recordings, given the reach of federal law?

Well one argument might be that this particular principle of federal copyright law should apply to all recordings that are in copyright, oblivious of where that copyright protection comes from (federal or state law).

Because having one approach to public performance rights for one set of recordings and another for a second set of older recordings is messy and confusing. Especially in a domain where services get blanket licences and then source actual content from a multitude of sources (ie not necessarily direct from the labels, who could police which set was being provided).

Perversely, it’s actually the tech sector that has previously argued that some principles of federal copyright law should be extended to recordings protected at a state level, where failure to do so would create a messy and confusing system.

Though for the tech firms, it’s the so called ‘safe harbours’ contained in the Digital Millennium Copyright Act that they’d like to see extended. Said safe harbours say that if digital firms inadvertently host copyright infringing content through automated or user-upload functions, they can’t be held liable for actual infringement providing they remove the offending content when issued with a takedown notice by the copyright owner.

Blogging platforms, video and audio sharing sites, search engines and digital lockers all rely on these protections (copyright owners would argue some deliberately exploit these safe harbours), and therefore get nervous at the suggestion that they might not enjoy the safeguards on any copyright sound recordings that pre-date 1972. Withdrawing the safe harbours from pre-1972 recordings would require all these digital services to more proactively monitor content being uploaded by users or being automatically gathered or linked to, to ensure the older material is blocked.

The DMCA says nothing about whether or not these safe harbours reach beyond 1972, and American courts faced with this specific question have been divided on the issue. Which means having elements of federal copyright law extended to pre-1972 recordings isn’t out of the question. And in theory this helps the rights owners in the debate over Sirius and Pandora royalties.

Except the major record companies are currently going after Grooveshark by specifically arguing that the DMCA’s safe harbours shouldn’t apply to pre-1972 recordings. Because while the major record companies believe the controversial streaming service, which allows users to upload tracks, is exploiting federal copyright law to build a business around unlicensed content, they are not confident that argument would stack up in court. But if they could persuade a judge that the get-outs didn’t apply to pre-1972 catalogue then they could at least get damages for the infringement of that content.

The labels can’t really argue for federal copyright law to be restricted to post-1972 material in one dispute but then ask for it to apply to older catalogue in another. The record industry’s strategy on the Sirius/Pandora royalty dispute, therefore, has been to argue that it is actually due a public performance royalty under state copyright laws as well as the federal system.

Now, in the main state copyright laws are a bit vague on whether sound recording copyrights do in fact enjoy the public performance control or not.

But, when the labels first presented this argument, legal reps for Sirius and Pandora confidently countered with this comeback: Traditional broadcasters have never paid a royalty to record labels for any of the tracks they play, including pre-1972 material. And state copyright laws – unlike federal law – do not specifically distinguish between AM/FM broadcasters and those using satellite and online channels (state copyright laws generally date from the 1970s and 1980s). So if the AM/FM stations don’t pay, neither should they.

Which might seem like a fair argument, but in the states of California and New York, where cases are now being heard, the courts are not concurring.

Three parties have gone legal over the pre-1972 issue so far – the major labels, SoundExchange and Flo & Eddie, the latter a duo perhaps best known as members of 1960s combo The Turtles – all of whom want to force Sirius, Pandora et al to pay royalties on the 1950s and 1960s catalogue.

The first case to work its way through to completion was Flo & Eddie’s lawsuit against Sirius in the Californian courts, and the duo won. The former Turtles have actually filed legal action in three separate states, but it was the lawsuit in California that reached its conclusion first.

Lawyers for the duo actually claimed that Sirius had violated two elements of their clients’ sound recording copyrights, firstly by copying the recordings onto their system and secondly by then instigating a public performance of them. The judge hearing the case said that the former claim would need to go to trial, but – crucially – that on the latter point she was ruling in favour of the musicians already. According to her interpretation of relevant Californian law, there was a public performance control with the sound recording copyright.

As a result of that ruling, the judge hearing the major labels’ case against Sirius in California seems to have changed her viewpoint. She had previously indicated she was of the opinion it was far from clear cut whether a public performance right did indeed exist for sound recording copyright owners in the state. But since the Flo & Eddie ruling she has seemingly fallen in line with the judgement in that case. And last month said she’d likely instruct any jury in the majors’ case that a public performance right did indeed exist.

Meanwhile, on the other side of the country in New York state, another judge has indicated the she believes a performing right likely applies to the sound recording copyright there as well. Last month judge Colleen McMahon, denying Sirius’s request for a summary judgement in its favour, said that the lack of case law on this matter to date suggested to her that a performing right for recordings probably applied.

Of course in both states Sirius has asked the killer question: if the courts are now saying that the record companies have an exclusive performing right over all their pre-1972 recordings, why haven’t they been enforcing that right for the last forty years and forcing radio stations (and anyone playing those recordings in a public place) to pay them royalties? And doesn’t the fact no artist or label has ever enforced that right suggest that it doesn’t actually exist?

“No” said McMahon, when posed with that specific argument from Sirius. “Acquiescence by participants in the recording industry in a status quo where recording artists and producers were not paid royalties while songwriters were does not show that they lacked an enforceable right under the common law – only that they failed to act on it”.

The likely reason that the labels have never tried to collect these royalties from conventional broadcasters – aside from the fact it was never previously 100% certain there were royalties to collect – is that the record labels of the 1960s and 1970s were first and foremost in the business of selling records.

Indeed, even in those countries where the labels have enjoyed a public performance right for sometime, right up until CD sales peaked in the late 1990s anything but core record sale income was seen as a side benefit by most record company bosses. It’s only in the last fifteen years that things like public performance revenue have become a vital part of a record company’s business.

And, of course, even if a label had thought about going after public performance royalties for pre-1972 content from traditional broadcasters previously, it wouldn’t have been at all clear how much money there was to grab, and therefore whether it would be worth the cost of any legal action and then setting up a system via which to collect the monies. But with Sirius and Pandora, the labels have a good idea of exactly what royalties they are missing out on, and in SoundExchange there is an organisation sitting there ready to collect the cash.

The ramifications of recent rulings for Sirius, Pandora and other online services playing pre-1972 recordings and relying on a SoundExchange licence is an increased royalties bill (assuming they have been withholding these monies to date).

Both Sirius and Pandora can be expected to fight this issue further, appealing any judgements that go in the labels’ favour, though in recent months the strength of their argument does seem to have dwindled somewhat. Especially now the New York judge has specifically dealt with the issue as to whether inaction on the record industry’s part to enforce a state level right in the past prevents it from doing so in the present (she said no).

But what about AM/FM radio, and anyone else playing pre-1972 sound recordings in public? Will the labels go after royalties from them if a clear precedent is set that a general public performance right does exist on that catalogue under state law? If so, the big broadcasters might simply threaten to pull any services and shows playing music from that era, at least in the states where a clear precedent has been set.

Of course if the AM/FM stations went through with that threat, it would be to the detriment of the songwriters and publishers already earning royalties from works from that era. Though the labels might call the broadcasters’ bluff. After all, while radio air play might have a promotional value for new artists and new material, arguably when it comes to ‘golden oldies radio’, the stations need the music more than the labels need the promotion.

You don’t sense that the labels entered into all this with a bid to go after the AM and FM broadcasters – they’d much rather a change in the federal law meaning public performance royalties across the board. Though to ensure the credibility of going after Sirius and Pandora for royalties, and to satisfy shareholders keen to ensure labels go after every possible penny of income, they might also be forced into a battle with the broadcasters on the pre-1972 recordings catalogue.

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