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From the “Stairway to Heaven” trial to the ongoing litigation surrounding pre-1972 recordings, 2016 was a big year for music law — but 2017 is shaping up to be even bigger.
The music industry’s battle against stream-ripping, changes to consent decrees and a potential Supreme Court case involving DMCA exemptions are all on the docket. So The Hollywood Reporter asked Steve Marks, general counsel for the Recording Industry Association of America, what’s at stake in the year ahead and which cases he’ll be watching most closely.
What do you feel were the biggest developments in music law in 2016?
The past year included a number of decisions where courts wrestled with whether certain online services using music must obtain a license. The online services invoked the DMCA as a liability shield for the widespread use of music on their platform, and the decisions demonstrate that the DMCA continues to litter the marketplace with outcomes that place competitors in different positions. In October, the Second Circuit emphasized in EMI v. MP3Tunes that a service cannot adopt policies to “willfully blind” itself of infringement by users of the service and recognized that the Defendants could have knowledge based on “red flags” given the facts in the record. This decision differed from a June decision by the Second Circuit in Capitol v. Vimeo, where the court applied a very stringent view of “red flag knowledge” and “willful blindness,” saying categorically that each must be based on knowledge of specific infringements. This reading of the DMCA effectively reads “red flag knowledge” out of the statute; after all, the definition of a “red flag” is that it provides a person enough information that the person should take some steps to address a problem. If this reasoning were to prevail, it would provide perverse incentives for services to profit from the music drawing users to their service without paying creators and undermine the balance that Congress thought it struck when enacting the DMCA.
The Vimeo case also highlighted another big issue for the music industry — the protection of pre-72 recordings. In that case the issue was whether the DMCA — a federal law that provides limitations and exceptions to copyright law — applies to pre-72 recordings, which are otherwise covered by state law. Curiously the court made the leap that this federal law of limitations and exceptions applies to pre-72 recordings, even though federal law provides no protection for pre-72 recordings. For example, the owner of a pre-72 recording cannot avail itself of statutory damages under federal law or receive royalties under the statutory license.
This issue is playing out more generally in cases where pre-72 owners such as The Turtles are seeking royalties from services such as Pandora and SiriusXM. On Dec. 20, the highest court in New York ruled that SiriusXM does not need a license for a public performance even though it has many channels that primarily use pre-72 recordings, though other state law claims such as unfair competition may be available. Keep in mind that SiriusXM is a $22 BILLION dollar company that by its own projections is slated to rake in a record $5 billion in revenues in 2016.
Which lawsuits will you be watching most closely in the coming year?
2017 is shaping up to be a critical year for music law. The Copyright Royalty Tribunal will set the rates that SiriusXM will pay sound recording copyright owners during the years 2018-22. To date, SiriusXM has benefited from below market rates set by the CRB under the so-called 801(b) standard. This rate standard does not require a marketplace rate, and the cost to artists and labels over the last 10 years is in the hundreds of millions if not billions. The result: a subsidy for SiriusXM as it has built an enormously profitable business. SoundExchange, representing artists and labels, is trying to restore some balance so that SiriusXM pays rates more in line with those that would be negotiated in the market. SiriusXM is asking for rates to be reduced. The decision is due by December 2017.
As the music marketplace has transitioned to streaming, the industry is seeing a rise in services that enable “stream-ripping,” which essentially copy and download music from a service intended only for streaming music or music videos. Stream-ripping undermines both streaming and download services. After all, why bother subscribing to Spotify if you can download all the music from YouTube? The industry has taken action against the largest stream-ripping site in the world, youtube-mp3.org. The case should be underway in earnest next year.
Next year the Second Circuit will hear the Department of Justice’s appeal of the court decision that the BMI consent decree does not require 100 percent licensing. This ruling will have a significant impact on performance licenses for compositions because a 100 percent licensing rule could result in a race to the bottom that reduces rates for songwriters. Also, the CRB will set mechanical rates for on-demand streaming and other digital services. The decision is critical to ensure fair royalties to songwriters and continued growth in the streaming marketplace.
What legislative issues should the music industry be watching in 2017?
Earlier this month, House Judiciary Chairman Goodlatte and Ranking Member Conyers began the first phase of implementing the two-year process Congress has undertaken to federal copyright law — a proposal to modernize the Copyright Office. Going forward, we expect music licensing issues to follow. Proposals that could be on the table include: (1) ensuring that SiriusXM and others pay market-based rates; (2) ensuring that all services pay for recordings made before 1972; (3) having broadcasters pay artists and labels when they use their music, as they do songwriters and music publishers; and (4) ensuring that songwriters and music publishers are not stymied by outdated consent decrees.
What changes do you foresee in the landscape of music law over the next five years?
Issues like the “value gap” and obligations of intermediaries will continue to dominate the legal landscape. Ideally, the Byzantine legal structure today would give way to a system where creators are fairly compensated and competitors are on equal footing. Those who have an interest in music could come together to figure out solutions. While litigation can be an important tool, it often takes a long time and the results are unclear. Solutions between business and industry partners can clear a path through thorny legal issues. The combination of partnership and technology can go a long way to ensuring a healthy music ecosystem.
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