Monday, September 14, 2009

If you are listening to Pandora online, thank the Court of Appeals

The Court of Appeals has issued an interesting ruling which analyzes whether user-created Internet music stations require Launchcast and Pandora to pay licensing fees each time a song is played. This is the first time any of the Courts of Appeal have resolved this issue, which is must reading for anyone who wants to know why they cannot hear a particular song on demand when streaming music online.

The case is Arista Records v. Launch Media, decided on August 21. In 1971, Congress created a right to reproduce and distribute copies of sound recordings. This law did not allow copyright holders (such as record companies) to extract licensing fees from radio stations; it was understood that record companies and radio stations had a symbiotic relationship in that the companies needed their songs played on the radio without charge in order to promote the music.

By the 1990's, though, the Internet became commonplace, allowing people to copy music digitally without paying for it. The record companies worried that new technologies would destroy the industry. In 1995, Congress enacted the Digital Performance Right in Sound Recordings Act (DPSR) which gave the copyright holders more control over the music. Any Internet-based "interactive" and paid subscription service which allowed listeners to hear a song on request must pay a licensing fee when these songs were played. This solved the industry's concern that people would stop buying music at the record store and instead listen to their favorite songs online without charge.

In 1998, Congress amended the DPSR to define "interactive service" to include a service that allows someone to hear a song as part of a program specially created for him. DPSR also defines "interactive service" to include a service where the listener hears a particular song on demand. Under these interactive services, the record companies (or some other copyright holder) receives a licensing fee whenever the song is played online. Congress suggested that "a service would not be interactive if it merely transmitted to a large number of recipients of the service's transmissions a program consisting of sound recordings requested by a small number of those listeners."

Many of us love Pandora radio and Yahoo's Launchcast. Under these services, you can type in the kind of music you want to hear, and a computer program designs a playlist that conforms to your tastes. You don't have to pay for this service, and some of us work all day with Pandora playing music through the computer. Major record companies sued Launchcast under the DPSR, claiming that the music service is structured in a way that required Launchcast to pay licensing fees when listeners create these radio stations. The record companies lost the trial before district judge Richard Owen (who incidentally ruled against former Beatle George Harrison in the 1970's for copyright infringement in a landmark case that said that Harrison subconsciously plagiarized "He's So Fine" in writing "My Sweet Lord").

In resolving this case, the Court of Appeals (Wesley, Calabresi and Droney) details how Launchcast works. This is interesting reading, though the Court notes that "it is hard to think of a more complicated way to 'select songs.'" Briefly, the music lover "creates" a personalized radio station by typing in her favorite artists. Launchcast then plays songs that would fit within the music lover's tastes, and she can adjust the playlist over time by rating songs and artists. But the user does not know what songs are actually on the playlist (which derives from a pool of about 10,000 songs); you only know the next song when it's broadcast by Launchcast. As many of us have discovered in using Launchcast and Pandora, you cannot select a particular song at a particular time. You have to sit and hope that song will come on sooner or later. If you create your radio station and properly rate the songs and artists, you will eventually hear that song, but you cannot hear it on demand. The Second Circuit deftly explains this process, using as examples U2's album The Joshua Tree as well as Here Comes the Sun, A Day in the Life and Eleanor Rigby by the Beatles (and if these examples reflect Judge Wesley's tastes, then we have a lot more in common than I thought).

In a blow to the record companies, the Court of Appeals holds that Launchcast is not an "interactive service" under the law. First of all, a Launchcast user cannot hear a particular song on demand. But that is not the end of the inquiry. The Court notes that "Launchcast may still be liable if it enables the user to receive a transmission of a program 'specially created' for the user." This is a closer question, but the record companies lose. The Court frames the issue: "whether the Launchcast playlists, uniquely generated for the user each time the user selects a station, are specially created and therefore interactive."

The answer is no. Launchcast does not provide a specially created program under the law "because the webcasting service does not provide sufficient control to users such that playlists are so predictable that users will choose to listen to the webcast in lieu of purchasing music, thereby -- in the aggregate -- diminishing record sales." Indeed, approximately 60 percent of the songs on the playlist are outside the music lover's control. For example, while the user has control over the genre of songs, "this degree of control is no different from a traditional radio listener expressing a preference for a country music station over a classic rock station." According to the Court, "It appears that the only thing a user can predict with certainty -- the only thing the user can control -- is that by rating a song at zero the user will not hear that song on that station again." However, "the ability not to listen to a particular song is certainly not a violation of a copyright holder's right to be compensated when [its] sound recording is played."

This ruling does not mean that Launcast pays nothing for playing the songs. It is only required to pay a much lower statutory licensing fee set by the Copyright Royalty Board. But the licensing fees sought by the record companies in this case could have put Launchcast and Pandora out of business.

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