[Federal Register Volume 73, Number 137 (Wednesday, July 16, 2008)]
[Proposed Rules]
[Pages 40802-40813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16165]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 201 and 255
[Docket No. RM 2000-7]
Compulsory License for Making and Distributing Phonorecords,
Including Digital Phonorecord Deliveries
AGENCY: Copyright Office, Library of Congress.
ACTION: Notice of Proposed Rulemaking.
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SUMMARY: The Copyright Office of the Library of Congress is proposing
to amend its regulations to clarify the scope and application of the
Section 115 compulsory license to make and distribute phonorecords of a
musical
[[Page 40803]]
work by means of digital phonorecord deliveries.
DATES: Written comments must be received in the Office of the General
Counsel of the Copyright Office no later than August 15, 2008. Reply
comments must be received in the Office of the General Counsel of the
Copyright Office no later than September 2, 2008.
ADDRESSES: If hand delivered by a private party, an original and five
copies of a comment or reply comment should be brought to the Library
of Congress, U.S. Copyright Office, Room 401, 101 Independence Avenue,
SE, Washington, DC 20559, between 8:30 a.m. and 5 p.m. The envelope
should be addressed as follows: Office of the General Counsel, U.S.
Copyright Office. If delivered by a commercial courier, an original and
five copies of a comment or reply comment must be delivered to the
Congressional Courier Acceptance Site (``CCAS'') located at 2nd and D
Streets, NE, Washington, DC between 8:30 a.m. and 4 p.m. The envelope
should be addressed as follows: Office of the General Counsel, U.S.
Copyright Office, LM 403, James Madison Building, 101 Independence
Avenue, SE, Washington, DC 20559. Please note that CCAS will not accept
delivery by means of overnight delivery services such as Federal
Express, United Parcel Service or DHL. If sent by mail (including
overnight delivery using U.S. Postal Service Express Mail), an original
and five copies of a comment or reply comment should be addressed to
U.S. Copyright Office, Copyright GC/I&R, P.O. Box 70400, Washington, DC
20024.
FOR FURTHER INFORMATION CONTACT: Tanya M. Sandros, General Counsel, or
Stephen Ruwe, Attorney Advisor, Copyright GC/I&R, P.O. Box 70400,
Washington, DC 20024. Telephone: (202) 707-8380. Telefax: (202)-707-
8366.
SUPPLEMENTARY INFORMATION:
Background.
The copyright laws of the United States grant certain rights to
copyright owners for the protection of their works of authorship. Among
these rights are the right to make, and to authorize others to make, a
reproduction of the copyrighted work, and the right to distribute, and
to authorize others to distribute, the copyrighted work. 17 U.S.C.
106(1) and (3). Both the reproduction right and the distribution right
granted to a copyright owner inhere in all works of authorship and are,
for the most part, exclusive rights. However, for nondramatic musical
works, the exclusivity of the reproduction right and distribution right
are limited by the nonexclusive compulsory license set forth in Section
115 of Title 17, which allows third parties to make and distribute
phonorecords of nondramatic musical works.
The Section 115 compulsory license can be invoked once a
nondramatic musical work embodied in a phonorecord has been distributed
``to the public in the United States under the authority of the
copyright owner.'' 17 U.S.C. 115(a)(1). Unless and until such an act
occurs, the copyright owner's reproduction and distribution rights
remain exclusive, and the compulsory license does not apply. Once
distribution has occurred, the license permits anyone to make and
distribute phonorecords of the musical work provided that they comply
with all of the terms and conditions of Section 115. It is important to
note that the compulsory license only permits the making and
distribution of phonorecords of a musical work, and does not permit the
use of a sound recording created by someone else. The compulsory
licensee must either assemble his own musicians, singers, recording
engineers and equipment to make a cover recording or obtain permission
to use a preexisting sound recording before making a phonorecord that
includes that sound recording. One who obtains permission to use
another's sound recording is eligible to use the compulsory license to
clear the rights for use of the musical work embodied in the sound
recording.
The compulsory license was the first statutory license in U.S.
copyright law, having its origin in the 1909 Copyright Act. It operated
successfully for many years, and it continued under the 1976 Copyright
Act with some modifications. However, in 1995, Congress passed the
Digital Performance Right in Sound Recordings Act (``DPSRA''), Pub. L.
No. 104-39, 109 Stat. 336, which amended Sections 114 and 115 of Title
17 to take into account technological changes which enable digital
transmissions of sound recordings on a large scale. With respect to
Section 115, the DPSRA expanded the scope of the compulsory license to
include the right to distribute or authorize the distribution of a
phonorecord by means of a ``digital phonorecord delivery.'' 17 U.S.C.
115(c)(3)(A).
For purposes of Section 115, a ``digital phonorecord delivery,'' is
defined as ``each individual delivery of a phonorecord by digital
transmission of a sound recording which results in a specifically
identifiable reproduction by or for any transmission recipient of a
phonorecord of that sound recording, regardless of whether the digital
transmission is also a public performance of the sound recording or any
nondramatic musical work embodied therein. A digital phonorecord
delivery does not result from a real-time, non-interactive subscription
transmission of a sound recording where no reproduction of the sound
recording or the musical work embodied therein is made from the
inception of the transmission through to its receipt by the
transmission recipient in order to make the sound recording audible.''
17 U.S.C. 115(d).
As a result of the DPSRA, the Section 115 license applies to two
kinds of disseminations of nondramatic musical works: 1) the
traditional making and distribution of physical phonorecords; and 2)
digital phonorecord deliveries, commonly referred to as DPDs. However,
in including DPDs within Section 115, Congress directed that rates and
terms for DPDs should distinguish between ``(i) digital phonorecord
deliveries where the reproduction or distribution of a phonorecord is
incidental to the transmission which constitutes the digital
phonorecord delivery, and (ii) digital phonorecord deliveries in
general.'' 17 U.S.C. 115(c)(3)(D). This language has led to endless
debates as to what constitutes an ``incidental DPD.''
As required by the DPSRA, in 1996 the Library of Congress initiated
a Copyright Arbitration Royalty Panel (``CARP'') proceeding to adjust
the royalty rates for DPDs and incidental DPDs. 61 FR 37213 (July 17,
1996). The parties to the proceeding avoided arbitration by reaching a
settlement as to new rates for DPDs and the time periods for conducting
future rate adjustment proceedings for DPDs. The parties could not
reach agreement, however, on new rates for incidental DPDs because the
representatives of both copyright owners and users of the Section 115
license could not agree as to what was, and what was not, an incidental
DPD. The resolution of this impasse was to defer establishing rates for
incidental DPDs until the next scheduled rate adjustment proceeding.
The Librarian of Congress accepted the settlement agreement of the
parties and adopted new regulations setting rates for DPDs and a
timeframe for future rate adjustments. 64 FR 6221 (February 9, 1999).
Section 255.5 of 37 CFR specified royalty rates for DPDs ``in
general,'' while Sec. 255.6 of the rules expressly deferred
consideration of incidental DPDs. The time table for future rate
adjustment proceedings for general DPDs and incidental DPDs was set
forth in Section 255.7 and provided
[[Page 40804]]
for proceedings at two-year intervals upon the filing of a petition by
an interested party. The year 2000 was a window year for the filing of
such petitions.
In accordance with this timetable, the Copyright Office received on
November 22, 2000, a pleading from the Recording Industry Association
of America (``RIAA'') styled as a ``Petition for Rulemaking and to
Convene a Copyright Arbitration Royalty Panel If Necessary.'' The RIAA
petition asked the Office to conduct a rulemaking proceeding to address
the issue of what types of digital transmissions of prerecorded music
are general DPDs, and what types are incidental DPDs. Specifically,
RIAA asked the Office to determine the status of two methods used to
deliver music digitally, On-Demand Streams and Limited Downloads, and
whether and to what extent they come within the scope of the Section
115 license.
For purposes of the proposed rulemaking, RIAA characterized an
``On-Demand Stream'' as a ``on-demand, real-time transmission using
streaming technology such as Real Audio, which permits users to listen
to the music they want when they want and as it is transmitted to
them,'' and a ``Limited Download'' as an ``on-demand transmission of a
time-limited or other use-limited (i.e. non-permanent) download to a
local storage device (e.g. the hard drive of the user's computer),
using technology that causes the downloaded file to be available for
listening only either during a limited time (e.g. a time certain or a
time tied to ongoing subscription payments) or for a limited number of
times.'' RIAA petition at 1.
RIAA steadfastly maintained that a rulemaking is necessary to
determine the status of these two types of digital music delivery
systems because the record companies and music publishers could not
agree how to categorize them for purposes of the Section 115 license.
RIAA stated its opinion that On-Demand Streams are more in the nature
of an incidental DPD, for which there are currently no established
royalty rates, whereas music publishers have taken the position that
On-Demand Streams include the making of a general DPD for which they
are entitled to full compensation. Consequently, RIAA asked the Office
to determine whether On-Demand Streams are incidental DPDs and, if they
were, to convene a CARP to set rates for these incidental DPDs.
With respect to Limited Downloads, RIAA suggested that they may be
either (1) incidental DPDs or (2) more in the nature of record rentals,
leases or lendings. The latter approach is based upon the provision in
the Section 115 license which authorizes the maker of a phonorecord to
rent, lease or lend it, provided that a royalty fee is paid.
Specifically, the statute states:
A compulsory license under this section includes the right of
the maker of a phonorecord of a nondramatic musical work ... to
distribute or authorize distribution of such phonorecord by rental,
lease, or lending (or by acts or practices in the nature of rental,
lease, or lending). In addition to any royalty payable under clause
(2) and chapter 8 of this title, a royalty shall be payable by the
compulsory licensee for every act of distribution of a phonorecord
by or in the nature of rental, lease, or lending, by or under the
authority of the compulsory licensee. With respect to each
nondramatic musical work embodied in the phonorecord, the royalty
shall be a proportion of the revenue received by the compulsory
licensee from every such act of distribution of the phonorecord
under this clause equal to the proportion of the revenue received by
the compulsory licensee from distribution of the phonorecord under
clause (2) that is payable by a compulsory licensee under that
clause and under chapter 8. The Register of Copyrights shall issue
regulations to carry out the purpose of this clause.
17 U.S.C. 115(c)(4). RIAA noted that the Copyright Office has yet to
adopt such regulations.
This provision was added to Section 115 in the Record Rental
Amendment of 1984, Pub. L. No. 98-450, which also amended the first
sale doctrine codified in section 109 to restrict the owner of a
phonorecord from disposing of the phonorecord for direct or indirect
commercial advantage by rental, lease or lending without authorization
of the sound recording copyright owner. The legislative history of the
amendment to Section 115 states that the amendment was made to
emphasize ``that the right of authorization accorded to copyright
owners of recorded musical works under revised section 109(a) is
subject to compulsory licensing under revised Section 115'' and that it
gives the copyright owner of a nondramatic musical work recorded under
a compulsory license the right to a share of the royalties for rental
received by a compulsory licensee (a record company) in proportion
equal to that received for distribution under Section 115(c)(2). H.R.
Rep. No. 98-987, at 5 (1984).
The Office was to issue appropriate regulations relating to the
royalty for rental, lease or lending ``as and when necessary to carry
out the purposes'' of Section 115(c)(4). S. Rep. No. 98-162, at 9
(1983). Thus far, there has been no need to issue such regulations
because the Office has been unaware of any activity by sound recording
copyright owners engaging in or authorizing the rental, lease or
lending of phonorecords.
In summary, RIAA asserted that it is unclear whether the Section
115 license permits all of the reproductions necessary to make On-
Demand Streams or Limited Downloads, and if it does, what royalty rates
apply. Consequently, RIAA petitioned the Office to determine: 1)
whether On-Demand Streams are incidental DPDs covered by the license;
2) whether the license includes the right to make server copies or
other copies necessary to transmit On-Demand Streams and Limited
Downloads; and 3) the royalty rate applicable to On-Demand Streams (if
they are covered by the license) and Limited Downloads.
Prior to publication of a notice of inquiry, the Office received
unsolicited comments from Napster, Inc. (``Napster''), Digital Music
Associates, Inc. (``DiMA''); and MP3.com, Inc. (``MP3'') in response to
the RIAA petition. In its comments, Napster opposed the RIAA petition
and urged the Copyright Office to defer resolution of the issues to
Congress, which it contended is the appropriate forum for resolving the
types of questions raised by the petition. On the other hand, MP3
supported the RIAA petition and urged the Office to conduct a
rulemaking proceeding to determine whether copies made in the course of
On-Demand Streams are incidental DPDs, and whether the copies made that
are necessary to stream musical works are covered by the Section 115
license. In the event the Office concluded that the disputed
reproductions are covered, it also asked the Library to convene a CARP
to ``determine the appropriate rate or rates (if any)'' for incidental
DPDs.
Like RIAA and MP3, DiMA was especially concerned with the status of
copies of musical works made in the course of streaming. In particular,
DiMA noted that the status of temporary RAM buffer copies created in a
user's personal computer during audio streaming was raised at the
November 29, 2000, Copyright Office/National Telecommunications and
Information Administration hearing on the Section 104 study mandated by
the Digital Millennium Copyright Act of 1998 (``DMCA'') and urged that
consideration of the same issue in a rulemaking proceeding be done in
such a way as not to prejudice the outcome of that study. Thus, DiMA
indicated that either the issue should be resolved in the Section 104
study, or that the Office should conduct a separate rulemaking
proceeding devoted solely to the issue.
[[Page 40805]]
DiMA suggested, however, that the complexity of the issue counsels for
legislative action rather than agency interpretation of the existing
statute.
Although a number of parties urged the Office not to take up the
questions, the Copyright Office published a Notice of Inquiry on March
9, 2001, 66 FR 14099, to gather information on the issues raised in the
petition. The Notice asked for comments from interested parties on the
interpretation and application of the Section 115 compulsory license to
certain digital music services, namely, Limited Downloads and On-Demand
Streams.
In response to the March 9, 2001, Notice of Inquiry, the Copyright
Office received eight comments and ten reply comments. On December 14,
2001, the Office published a follow-up notice seeking comments on the
March 9, 2001, Notice of Inquiry in light of an agreement negotiated by
RIAA, National Music Publishers Association (``NMPA'') and Harry Fox
Agency (``HFA'') concerning the interpretation and application of
Section 115 to On-Demand Streams and Limited Downloads. Eight comments
were submitted in response to that notice. Some of the comments are
discussed below.
Subsequently, Congress passed the Copyright Royalty and
Distribution Reform Act of 2003. This Act altered the administrative
structure for determining rates and terms for various compulsory
licenses in Title 17. It established the Copyright Royalty Judges, who
assumed authority for determining rates and terms for the statutory
licenses, including the Section 115 license. See 17 U.S.C. chapter 8.
Additional legislative activity took place with respect to reform
of the Section 115 license, and for several years the Office's
rulemaking activities were placed on the back burner as prospects for
legislative reform, which could more comprehensively and effectively
address the issues, were explored. On March 11, 2004, the Subcommittee
on Courts, the Internet and Intellectual Property of the House
Committee on the Judiciary held a hearing on ``Section 115 of the
Copyright Act: In Need of an Update.'' Shortly after that hearing, the
chairman of the subcommittee asked the Register of Copyrights to meet
with the interested parties to explore ways in which Section 115 could
be modernized by means of legislation that would address, among other
things, the issues raised in this rulemaking. The Register's
discussions with the parties made limited progress, and legislative
options were again explored at a hearing of the subcommittee on June
21, 2005. The Subcommittee on Intellectual Property of the Senate
Judiciary Committee also conducted a hearing on July 12, 2005.
Following those hearings, interested parties continued to discuss
legislative reform, leading to the introduction of the proposed Section
115 Reform Act (``SIRA''), H.R. 5553, in the 109th Congress, and a
further hearing in the House subcommittee on May 16, 2006.
SIRA would have amended Section 115 to make clear that the
compulsory license for DPDs covers ``the making and distribution of
general and incidental digital phonorecord deliveries in the form of
full downloads, limited downloads, interactive streams, and any other
form constituting a digital phonorecord delivery or hybrid offering''
and that it covers ``all reproduction and distribution rights necessary
to engage in'' those activities. H.R. 5553, Section 2. It also would
have granted a royalty-free license ``for the making of server and
incidental reproductions to facilitate noninteractive streaming.'' Id.
Although SIRA was approved by the House Subcommittee on Courts, the
Internet and Intellectual Property, the 109th Congress adjourned
without further action on the bill. Since that time, there has been no
further legislative action with respect to Section 115.
Early in the current Congress, the House subcommittee once again
explored reform of Section 115 at a March 22, 2007, hearing. However,
no legislation has been introduced and no visible progress has been
made on reform of the section in the 16 months since that hearing.
Because of the lack of progress on legislative reform, the Office
once again directed its attention to the possibility of regulatory
reform a year ago. On June 15, 2007, the Copyright Office conducted a
public roundtable to refresh the record in order to ascertain the scope
of the Section 115 license in relation to certain digital music
services. The roundtable participants expressed their analyses of the
legal implication of current business models and offered insight
regarding the technology employed in today's marketplace. Over 20
representatives of organizations and companies representing copyright
owners, songwriters, record companies, online music services and others
participated in the roundtable. Their views will be discussed below.
Purpose of this proceeding
Having considered the views expressed at the June 15, 2007,
roundtable as well as the previous record in this rulemaking
proceeding, and mindful of the attempts to develop legislation that
would reform Section 115, the Office now proposes to amend its
regulations in a way that would enable digital music services to
utilize the compulsory license to clear all reproduction and
distribution rights in musical works that might be necessary in order
to engage in activities such as the making of full downloads, Limited
Downloads, On-Demand streams and non-interactive streams.\1\ As
discussed below, certain parties (including, for example, some digital
music services) disputed whether it is necessary to obtain a license
for the reproduction or distribution rights in order to engage in some
of these activities, while other parties (such as music publishers)
contended that it is necessary to clear the reproduction and
distribution rights in order to engage in any of these activities
lawfully.\2\
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\1\ The Office notes that the right to make and distribute a DPD
does not include the exclusive rights to make and distribute the
sound recording itself. These rights are held by the copyright owner
of the sound recording and must be cleared through a separate
transaction. See 17 U.S.C. 115(c)(3)(H). Certain transmission
services, which operate under a Section 114(f) license to perform
publically the sound recording, may operate under a separate
statutory license to reproduce these sound recordings. See Section
112(e). However, a the right to distribute a sound recording is not
included in the Section 112(e) license.
\2\ The position of the music publishers with respect to non-
interactive streaming is somewhat ambiguous. Music publishers
supported the provision in SIRA which would have offered a royalty-
free compulsory license for the reproduction and distribution rights
implicated in non-interactive streaming.
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The proposed regulatory changes take no position with respect to
whether and when it is necessary to obtain a license to cover the
reproduction or distribution of a musical work in order to engage in
activities such as streaming. However, the amendments would make the
use of the statutory license available to a music service that wishes
to engage in such activity without fear of incurring liability for
infringement of the reproduction or distribution rights. Nor would the
proposed regulations preclude licensees from arguing to the Copyright
Royalty Judges that the royalty fees for certain of the licensed
activities should be nominal or even free. Copyright owners presumably
would argue for a substantial royalty. The Copyright Royalty Judges
have the authority, based on a review of the record and consideration
of the objectives set forth in 17 U.S.C. 801(b)(1), to conclude that
the reasonable royalty fee for certain reproductions included within
the license would be a rate of zero or, on the other hand, that all
reproductions and
[[Page 40806]]
distributions of phonorecords included within the license should be
subject to the same royalty fee.
More specifically, the proposed regulations would allow the
aforementioned services to employ the Section 115 license to cover all
musical works embodied in phonorecords made and distributed to the
public for private use including those phonorecords made on the end-
users' RAM or hard drive, on transmission service's servers, and all
intermediate reproductions on the networks through which transmission
occurs.
In reaching this tentative interpretation, the Office has
considered the parties' various interpretations of Section 115 which
have evolved, as has ours, over the course of this proceeding.
Moreover, the Office notes that both the continued legal uncertainty
associated with operating music services in the current marketplace and
the need to establish royalty rates for the statutory license highlight
the need to resolve the outstanding questions concerning which
reproductions of phonorecords made during the course of a stream falls
within the scope of the statutory license and which, if any, do not.
Such uncertainty has contributed to the current crisis in the music
industry, due to the difficulty of obtaining licenses for all the
rights required in order to offer various online music services in an
environment in which it is not always apparent which rights must be
cleared and how one can obtain them. While reasonable minds can differ
on how to interpret Section 115 with respect to these reproductions,
the Office proposes an approach which would support the making of all
phonorecords made during the course of a transmission without regard to
whether that transmission also involves the delivery of a public
performance. With the publication of today's notice, the Office seeks
public comment on its proposed interpretation.
Regulatory Authority
As a preliminary matter, the Office requested comments on whether
the questions raised in this proceeding could be addressed in an
administrative rulemaking. While most of the commenters did not
challenge the Office's rulemaking authority in this proceeding, NMPA
and Songwriter's Guild of America (``SGA'') did suggest that the Office
may be without authority to consider which phonorecords made during a
digital transmission could be covered under a Section 115 license.
NMPA and SGA argued that the Office has no authority to conduct a
rulemaking to formulate a rule that would identify the general
characteristics of an incidental DPD that distinguishes it from a
general DPD. Moreover, NMPA contended that the Office has no authority
to determine what types of activities, e.g., on-demand streams,
constitute a DPD. It maintained that such determinations are so complex
that they cannot be fixed by regulation and that such questions are
best addressed by Congress through legislative changes or by the
courts. NMPA also contended that rapid changes in technology would
counsel against using a rulemaking proceeding to resolve these issues.
The Consumer Electronics Association and Clear Channel Communications,
Inc. (``CEA/Clear Channel'') supported NMPA's position with respect to
the Office's authority to conduct this rulemaking and maintained that
clarification of the law must come from Congress. See also Napster
Reply Comment (arguing that Congress should balance the specific
concerns of the interested parties and enact a legal regime that
addresses their concerns).
Other commenters, such as DiMA and RIAA, expressed support for the
rulemaking process for the purpose of deciding which activities are
covered under the Section 115 license in order to clarify those
activities for which rates must be set. But RIAA wanted the rulemaking
to accomplish considerably more than just clarifying whether certain
activities fall within the scope of the license and asked the Office to
adopt rules governing records of use, notice requirements, and rentals,
lease and lendings. The Office is likely to address at least some of
these issues in a separate proceeding, but not in the current one.
The Office agrees that ideally, the resolution of the issues
addressed herein should be made by Congress, and for that reason the
Office has deferred moving forward in this rulemaking for several
years. However, it seems unlikely that Congress will resolve these
issues in the foreseeable future, yet the Office believes resolution is
crucial in order for the music industry to survive in the 21st Century.
The Copyright Office initiated this proceeding under its authority to
establish regulations for the administration of its functions and
duties under title 17. 17 U.S.C. 702. The Office exercises its
authority under section 702 when it is necessary ``to interpret the
statute in accordance with Congress' intentions and framework and,
where Congress is silent, to provide reasonable and permissible
interpretations of the statute.'' Cable Compulsory License; Definition
of Cable System, 57 FR 3284, 3292 (January 29, 1992); see also
Satellite Carrier Compulsory License; Definition of Unserved Household,
63 FR 3685, 3686 (January 26, 1998) (invoking section 702 authority to
determine whether a local over-the-air broadcast signal may be
retransmitted into the local market area under the provisions of the
section 119 statutory license). Our authority to act is supported
bySatellite Broadcasting and Communications Ass'n of Am. v. Oman, 17
F.3d 344 (11th Cir. 1994) (``SBCA''), and Cablevision Sys. Dev. Co. v.
Motion Picture Ass'n of Am., Inc., 836 F.2d 599 (D.C. Cir.), cert.
denied, 487 U.S. 1235 (1988) (``Cablevision''), where the Eleventh
Circuit and the D.C. Circuit expressly acknowledged the Office's
authority to provide reasonable interpretations of the cable statutory
license. See SBCA, 17 F.3d at 347 (``The Copyright Office is a federal
agency with authority to promulgate rules concerning the meaning and
application of section 111''); Cablevision, 836 F.2d at 608-09 (same).
Section 115 gives the Register authority to administer the
compulsory license insofar as the Register is to prescribe by
regulation requirements for the compulsory licensee's Notice of
Intention to Obtain a Compulsory License, 17 U.S.C. 115(b)(1), and to
issue regulations establishing requirements for the payment of
royalties and governing statements of account submitted by compulsory
licensees. 17 U.S.C. 115(c)(5).
Moreover, the issues raised in this rulemaking are issues that will
necessarily be resolved in the pending proceeding to determine rates
and terms for the Section 115 compulsory license, Docket No. 2006-3 CRB
DPRA. It will be the responsibility of the Register of Copyrights to
review and, if necessary, correct the final determination of the
Copyright Royalty Judges on material questions of substantive law, such
as the questions addressed herein. 17 U.S.C. 802(f)(1)(D). See also 17
U.S.C. 802(f)(1)(B) (mandatory referral of novel material questions of
substantive law to the Register of Copyrights). Because these issues
will ultimately be presented to the Register for final administrative
determination, it makes sense for the Register to offer guidance on
those issues at this point in this ongoing rulemaking proceeding.
The scope of the Section 115 license
As a starting point, the parties offered a number of observations
about the scope of the Section 115 license and Congress's intent in
amending it to include DPDs. In comments early in the proceeding, some
commenters maintained that Congress amended
[[Page 40807]]
Section 115 in 1995 merely to adapt the license to a digital
distribution process and that the changes made to Section 115 did not
expand or alter the reproduction and distribution rights, or blur
existing lines between these rights and the copyright owner's exclusive
right to perform the musical work. DiMA and others also argued that
streaming does not involve a digital download of a phonorecord because
the process uses a temporary memory buffer to store packets of data
that are not fixed for purposes of copyright law. DiMA also maintained
that these temporary copies cannot be fairly characterized as DPDs
because these copies are not ``specifically identifiable
reproductions,'' as required by the statutory definition of a DPD. DiMA
and others maintained that unless the reproduction is specifically
recognizable to the transmission service that initiated the
transmission, it does not comport with the statutory definition.\3\
Finally, as a matter of policy, DiMA asserted that there is no economic
justification for requiring payment for these intermediate copies
because the copies are made to facilitate a licensed performance and
are part of a single economic event. The National Association of
Broadcasters (``NAB'') concurred, maintaining that ``it would seem to
turn the Section 115 license on its head if non-interactive streams
required a license under Section 115, even though the recipient listens
only once and does not end up with a reusable copy of the recording.''
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\3\ By the time of the Roundtable DiMA accepted an alternative
interpretation of the ``specifically identifiable'' requirement. See
Infra, discussion of Specifically identifiable.
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Others took a different approach and asked the Office to focus on
the purpose of the transmission. Some drew a distinction between
subscription services and non-subcription services, arguing that in the
case where the user cannot choose the song being played at a given
time, and a permanent copy is not made, then the purpose of such a
transmission is only to offer a performance. Alternatively, if the
delivery of the song is interactive, in that the listener can choose to
listen to a specific song at any time, the transmission of the song
should be subject to the full mechanical rate because it replaces the
need for the listener to buy a hard copy of the work.
The Office recognizes that nearly all of the commenters have
expressed some preference to distinguish different types of
transmissions such as those made by Download Services, Limited Download
Services, On-Demand/Interactive Streaming Services, and Non-interactive
Streaming Services. The Office understands that distinctions relating
to interactivity are appropriate in the context of the Section 114
license and that such distinctions may be appropriate to raise as a
matter of economic value or policy before the CRJs - e.g., in setting
rates - or Congress. However, distinctions such as these do not appear
to be relevant in determining whether particular reproductions of
phonorecords may be covered under the current Section 115 license,
except perhaps under the last sentence of Section 115(d) which
provides, ``A digital phonorecord delivery does not result from a real-
time, non-interactive subscription transmission of a sound recording
where no reproduction of the sound recording or the musical work
embodied therein is made from the inception of the transmission through
to its receipt by the transmission recipient in order to make the sound
recording audible.'' 15 U.S.C. 115(d) (emphasis added).
In the course of this proceeding, from the Notice of Inquiry
through to the Office's June 15, 2007, Roundtable discussion, no
participant offered any evidence or argument that streaming music
services, whether they be real-time non-interactive subscription
transmission services or on-demand interactive services, are able to
operate in a way in which no reproduction of the sound recording or the
musical work embodied therein is made from the inception of the
transmission through to its receipt by the transmission recipient. It
appears that in the course of all stream transmissions buffer
reproductions are made on the recipient's device. In addition, in the
course of at least some interactive stream transmissions, complete
reproductions (as well as buffer reproductions) are made and
distributed to the recipient. The Office considers whether these
reproductions constitute phonorecords, or DPDs, in this Notice.
Regardless of that analysis, the Office notes that they are in fact
reproductions, making the last sentence of Section 115(d) (which
excludes from the definition of DPDs certain non-interactive
transmissions when no reproduction is made in the course of the
transmission) inapplicable. Therefore, the Office, at this time, can
discern no basis for distinguishing between interactive and non-
interactive streams in determining whether a particular transmission
does or does not result in a DPD and, therefore, it proposes to define
a DPD without reference to the transmission types.
We now offer the following analysis regarding whether and how the
basic technical activities of reproducing digital copies during a
digital transmission fall within the scope of the Section 115 license
for making and distributing phonorecords.
Discussion
At the outset, the Office notes that there is general agreement
that all transmission services involve the making of complete
reproductions known as ``Server Copies,'' which the Office will refer
to as ``Server-end Complete Copies.''\4\ The parties generally agree
that certain transmission services, including Limited and Full Download
Services, involve the making of complete reproductions on the
recipient's computer. These services may or may not limit a recipient's
use of a work. The Office will refer to these reproductions as
``Recipient-end Complete Copies.'' The parties also generally agree
that all digital transmission services involve the making of
reproductions known as ``Buffer Copies.''\5\ The Office understands
that buffer copies are made on both the transmitting service's server
and on the recipient's computer. The Office will refer to these
reproductions as ``Server-end Buffer Copies'' and ``Recipient-end
Buffer Copies.'' The Office notes, however, that recognition of the
various types of reproductions made during the course of a digital
transmission is only the first step in the analysis.
---------------------------------------------------------------------------
\4\ While we refer to these reproductions as types of
``copies,'' we acknowledge that parties disagree on the copyright
implications of the reproductions, which are analyzed herein.
\5\ As discussed in greater detail herein, the Office
understands that ``buffer copies'' are composed of packets of data
that are deposited in temporary computer data storage, such as RAM,
where these packets are assembled to an extent such that, while
embodying less than the entire composition of a musical work, they
constitute a material object from which sound recordings can be
perceived, reproduced or otherwise communicated.
---------------------------------------------------------------------------
A. Digital Phonorecord Deliveries, in general.
In considering whether the reproductions made by a transmission
service are digital phonorecord deliveries and fit within the scope of
the Section 115 license, the Office turns to the definition of a DPD.
17 U.S.C. 115(d). The statute defines a DPD , in relevant part, as:
``each individual delivery of a phonorecord by digital
transmission of a sound recording which results in a specifically
identifiable reproduction by or for any transmission recipient of a
phonorecord of that sound recording, regardless of whether the
digital
[[Page 40808]]
transmission is also a public performance of the sound recording or
any nondramatic musical work embodied therein. A digital phonorecord
delivery does not result from a real-time, non-interactive
subscription transmission of a sound recording where no reproduction
of the sound recording or the musical work embodied therein is made
from the inception of the transmission through to its receipt by the
transmission recipient in order to make the sound recording
audible.'' 17 U.S.C. 115(d).
In order for each type of reproduction identified above to qualify
as a DPD under the statutory criteria, the reproduction must meet
all the criteria specified in the definition: (1) it must be
delivered, (2) it must be a phonorecord, and (3) it must be
specifically identifiable.
(1) Delivery. No party put forward any arguments that Server-end
Copies are delivered as per the statutory requirement for a DPD.
Indeed, the record indicates that Server-end Copies are retained by the
transmission service. As such, the Office tentatively concludes that
Server-end Complete Copies or Server-end Buffer Copies are not
delivered and therefore do not satisfy the first requirement for being
a DPD.\6\ On the other hand, there is general agreement amongst the
commenters that the reproductions created by transmission services on
recipients' computers are delivered. Despite the fact that several
parties chose not to specifically consider whether buffer copies are
delivered, this general agreement regarding delivery of recipient-end
copies appears to include both Recipient-end Complete Copies as well as
Recipient-end Buffer Copies. As such, the Office proposes that such
copies are delivered and therefore satisfy the first requirement for
being a DPD.
---------------------------------------------------------------------------
\6\ However, the fact that a server copy is not delivered does
not necessarily place it outside the scope of the Section 115
license. See Infra discussion of Non-DPD copies under the Section
115 License.
---------------------------------------------------------------------------
(2) Phonorecord. In considering whether the reproductions made by a
transmission service are phonorecords, the Office turns to the
definition found in 17 U.S.C. 101. The statute defines phonorecords as:
``material objects in which sounds, other than those accompanying a
motion picture or other audiovisual work, are fixed by any method now
known or later developed, and from which the sounds can be perceived,
reproduced, or otherwise communicated, either directly or with the aid
of a machine or device. The term `phonorecords' includes the material
object in which the sounds are first fixed.'' 17 U.S.C. 101. The
question though is whether each reproduction made during the course of
a digital transmission meets this definition and thus satisfies the
second prong of the statutory definition for a DPD.
a. Server-end Complete Reproductions. There is general agreement
among the commenters that a complete reproduction of a work created on
a transmission service's server satisfies the statutory definition of a
phonorecord. It is a material object from which fixed sounds can be
perceived. While DiMA puts forward the notion that Server-end Copies
used to facilitate licensed public performances should be exempted from
liability, its argument was based on economic and policy rationales.
Furthermore, DiMA did not offer any legal analysis by which such a copy
might, under existing law, be excluded from being considered a
phonorecord. As such, the Office tentatively finds that a Server-end
Complete Copy is a phonorecord and therefore satisfies the second (but,
as noted above, not the first) requirement for being a DPD.
b. Recipient-end Complete Reproductions. Likewise, the parties
generally agree that the creation of a complete reproduction of a work
on a recipient's computer satisfies the statutory definition of a
phonorecord. However, certain parties argued that a complete
reproduction created on a recipient's computer which is accessible for
a limited time or number of plays should be distinguished as a matter
of policy or for purposes of valuation. While policy reasons might
exist for distinguishing such a limited download from a permanent
reproduction, we can find no basis in the statute for considering a
limited download to be something other than a phonorecord. Moreover,
the fact that a limited download is a phonorecord does not in any way
prevent the Copyright Royalty Judges from valuing it differently and
setting a lower rate. As such, the Office proposes that a Recipient-end
Complete Copy is a phonorecord and therefore satisfies the second
requirement for being a DPD.
c. Buffer Reproductions. The Office recognizes that several
commenters dispute any finding that buffer copies made by transmission
services on either the Server-end or Recipient-end fall within the
statutory definition of a phonorecord. The positions advanced by these
parties rely on the notion that buffer copies are not sufficiently
fixed, that they are fragmentary, that they are temporary, or that they
are de minimis. As previously indicated, in the Office's consideration
of these issues, it understands that buffer copies are composed of
packets of data that are transmitted from one computer location to
another temporary computer data storage, such as RAM, where they are
assembled to an extent such that, while embodying less than the entire
composition of a musical work, they constitute a material object from
which sound recordings can be perceived, reproduced or otherwise
communicated and, as such, are phonorecords for purposes of the
copyright law.
A finding that buffer copies created by transmission services on
computer memory devices are phonorecords is also consistent with the
legal analysis set forth in the Office's DMCA Section 104 Report as
well as subsequent rulings. The Section 104 Report correctly stated
that RAM reproductions of copyrighted works are material objects. While
allowing that certain RAM reproductions that exist only for a
transitory duration may not exist as ``fixed'' copies, the Section 104
Report specifically pointed out that in general RAM copies are
sufficiently fixed and noted that permanence is not required for
fixation. Section 104 Report at 110-11. With regard to fixation, the
Section 104 Report stated that the dividing line can be drawn between
reproductions that exist for a sufficient period of time to be capable
of being ``perceived, reproduced, or otherwise communicated'' and those
that do not. DMCA Section 104 Report at 107-129 (August 29, 2001). The
Report further noted that:
To determine whether the reproduction right is implicated, the
focus is on whether there has been a fixation in a material object,
not on the quantity of material that has been so fixed. The
reproduction right is not limited to copies of an entire work.
Photocopying a page or paragraph out of an encyclopedia implicates
the reproduction right and may, in appropriate circumstances, be an
infringement. Whether or not a copy of a portion of a work is
infringing is a question not of whether the reproduction right is
implicated, but of whether the copying is substantial.
Id at 123.
The Office understands that individual RAM reproductions made on a
recipient's computer in the course of a transmission may, under various
models, comprise small portions of copyrighted works. The Office also
understands that NAB and DiMA challenged the extent to which such
copies of small portions of works enjoy protection. Under their
interpretation, the legislative history of DPSRA indicates that only
the transmission and storage of an entire sound recording (and not
fragments thereof) constitutes the making of a phonorecord. However,
[[Page 40809]]
the Office understands that title 17's language and purpose are broad
and that portions of musical works should be treated the same as any
other type of work. As stated in the Office's Ringtone Decision,
Section 115 ``does not expressly exclude `portions of works' from its
scope and we cannot assume that such treatment was intended in the
absence of clear statutory language to that effect.'' In the Matter of
Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding,
Docket No. RF 2006-1, at 13 (October 16, 2006).
The Office's consistent findings regarding fixation and coverage of
fragments of works support a finding that buffer copies meet the
statutory definition of phonorecords. Additionally, even if one were to
assume that the individual portions of works created by a transmission
service on a recipient's RAM were not protectible, questions regarding
the reproduction of a phonorecord would still not be settled. The
Section 104 Report specifically addressed the matter, stating that
``Even if each individual copy [the assemblage of several data packets]
were to be considered a de minimis portion under the test for
substantial similarity, the aggregate effect is the copying of the
entire work.'' DMCA Section 104 Report at 133. See also, Twentieth
Century Fox Film Corp. v. Cablevision Systems Corp., 478 F. Supp. 2d
607, 621 (2007), (creation of a buffer copy is ``copying'').
The Office has no reason to believe that developments in either
technology or the law require us to revisit the above-stated
conclusions. As such, Server-end Buffer Copies and Recipient-end Buffer
Copies appear to be phonorecords and therefore satisfy the second
requirement for being a DPD.
(3) Specifically identifiable. The Office recognizes that several
parties argued that transmissions made by certain types of services
should not be deemed to result in ``specifically identifiable
reproductions'' within the meaning of the statutory definition of a
DPD. More often than not, commenters' views did not delve into legal
analysis of this unique phrase and instead put forward arguments based
on economic fairness. In addition, the Office notes that certain
commenters' interpretations of the phrase appear to have shifted over
time. The Office therefore must determine whether and when a digital
transmission results in a ``specifically identifiable reproduction by
or for any transmission recipient of a phonorecord of that sound
recording.''\7\
---------------------------------------------------------------------------
\7\ The Office does not consider whether a server copy is
specifically identifiable because, under the Office's analysis the
server copy is not delivered and therefore does not fall within the
definition of DPD. As a result, we only consider if and when
Recipient-end Buffer Copies and Recipient-end Complete Copies are
``specifically identifiable.''
---------------------------------------------------------------------------
Several commenters urged the Office to adopt an interpretation of
``specifically identifiable reproduction by or for any transmission
recipient of a phonorecord of that sound recording'' that would require
that a reproduction be identifiable to the transmission service. To
support this position, they cited to a passage from the legislative
history of the DPSRA, which states ``the phrase `specifically
identifiable reproduction,'as used in the definition, should be
understood to mean a reproduction specifically identifiable to the
transmission service.'' S. Rep. No. 104-128 at 44. Under this
interpretation, DiMA argued that Recipient-end Buffer Copies and
certain Recipient-end Complete Copies (referred to as ``cache copies''
which are complete copies that exist temporarily on a recipient's
computer to enable the recipient to hear the sound recording at
substantially the same time as the transmission) are not specifically
identifiable to the transmission service and therefore such copies do
not satisfy the third requirement for being a DPD.
At this point, it is unclear to the Office under what circumstances
a service's transmission may result in a reproduction that is
specifically identifiable to the transmission service. The Office,
therefore, seeks additional information regarding how the different
transmission service models might result in Recipient-end Complete
Copies or Recipient-end Buffer Copies that are specifically
identifiable to the transmission service.
Of course, identification of the reproduction by the transmission
service is not the only option. By the time of the Roundtable
discussion DiMA had altered its position and joined other parties in
advancing an alternative interpretation of ``specifically
identifiable.'' Id. at 62-63. The alternative interpretation does not
look beyond the language of the statute itself. Instead, it focuses on
the language of Section 115(d) and simply requires that a transmission
of a sound recording result in a reproduction of a phonorecord that is
either specifically identifiable by any transmission recipient or
specifically identifiable for any transmission recipient.
On the present record, the Office understands that reproductions of
phonorecords appear to be ``specifically identifiable'' by both of
these avenues. As to the first alternative, for the period of time
during which each individual reproduction of a phonorecord exists on
the recipient's computer, the Office understands that the specific file
data for Recipient-end Complete Copies and Recipient-end Buffer Copies
can be identified by the transmission recipient. The Office recognizes
that it may be rare for a recipient to actually search out and identify
the relevant data, and it may not always be easy to identify it.
However, the Office understands that such identification is able to be
performed by the transmission recipient. Furthermore, the Office notes
that it is not actual identification but the possibility of
specifically identifying that satisfies the statutory requirement. The
Office also understands that the recipient's computer is necessarily
able to specifically identify each individual reproduction of
Recipient-end Complete Copies and Recipient-end Buffer Copies for the
transmission recipient. The Office understands that such identification
by the computer for the transmission recipient is a necessary step in
the computer actually making the phonorecord perceptible to the
transmission recipient. In other words, if a computer could not
specifically identify each part of a stream, it would be unable to
render the stream into a performance by assembling the parts in the
proper order for performance. The statutory definition does not appear
to require ``identifiability'' beyond that function.
While the Office understands commenters' desire to look to the
legislative history (which states at one point that ``the phrase
`specifically identifiable reproduction,' as used in the definition,
should be understood to mean a reproduction specifically identifiable
to the transmission service'') for the meaning of a phrase that is so
unique in copyright law, the parties advocating that interpretation
have made no concrete argument why there is any reason to look beyond
the plain text of the statute. Therefore, the Office proposes to follow
canons of statutory construction which dictate that ``the meaning of a
statute must, in the first instance, be sought in the language in which
the act is framed, and if that is plain, and if the law is within the
constitutional authority of the law-making body which passed it, the
sole function of the courts is to enforce it according to its terms.''
Caminetti v. United States, 242 U.S. 470, 485 (1917). As such, the
Office tentatively concludes that Recipient-end Complete Copies and
Recipient-end Buffer Copies satisfy the requirement that a transmission
of a sound recording must result in a reproduction of a
[[Page 40810]]
phonorecord that is either ``specifically identifiable by any
transmission recipient'' or ``specifically identifiable for any
transmission recipient'' and therefore such copies satisfy the third
requirement for being a DPD.
The Office seeks comment on the above-stated analysis and
proposals, which lead the Office to conclude that Recipient-end
Complete Copies and Recipient-end Buffer Copies satisfy the definition
for a DPD. 17 U.S.C. 115(d).
B. Incidental DPDs.
The Office recognizes commenters' views that certain reproductions
created by transmission services may be categorized as so-called
incidental DPDs. Section 115 requires that rates and terms shall
distinguish between general DPDs and incidental DPDs. However, the
statute does not offer a definition of incidental DPDs. Indeed, the
statute does not specifically refer to incidental DPDs; it simply
directs the Copyright Royalty Judges to set rates that ``distinguish
between (i) digital phonorecord deliveries where the reproduction or
distribution of a phonorecord is incidental to the transmission which
constitutes the digital phonorecord delivery, and (ii) digital
phonorecord deliveries in general.'' The lack of a specific definition
of incidental DPDs has created a great deal of confusion among those
parties with an interest in the Section 115 license. Because these
parties have been unable to agree upon what constitutes an incidental
DPD, they have been unable to negotiate rates for the making and
distribution of these reproductions. Moreover, amidst the disagreement
over the meaning of incidental DPDs, the Office notes that the parties
seem less interested in defining what constitutes an incidental DPD and
more concerned about receiving clarification as to whether specific
types of digital transmissions services fall within the scope of the
statutory license.
RIAA's analysis began with the proposition that an incidental DPD
is nothing more than a subset of DPDs. Along with other parties, RIAA
encouraged the Office to interpret the meaning of incidental DPD in a
rulemaking. NMPA, on the other hand, contended that it is not possible
to define incidental DPDs through a definition of general application
and suggested that the Office leave the matter to the industry to
resolve these issues through negotiations or a rate setting proceeding.
However, other parties, including DiMA, objected to the suggestion that
the best approach is to leave the matter in the hands of the industry.
In any event, the parties urging the Office to interpret the
meaning of incidental DPD have not offered specific suggestions as to
how the Office should define the term. Rather they offered conclusions
as to which specific types of digital transmission services should be
deemed to create reproductions that fall inside or outside the
definition of incidental DPD. Support for these conclusions was made on
policy or economic grounds. The few arguments that certain types of
services do not create incidental DPDs were made largely in terms of
whether reproductions satisfy the definition of DPDs in general, a
matter which the Office has already addressed herein. Commenters also
addressed the purpose of the transmission for purposes of
characterizing a reproduction as incidental, drawing a distinction
between services whose purpose is distribution and those whose purpose
is public performance.
As an initial matter, the Office is inclined to agree with the
RIAA's analysis that an incidental DPD is nothing more than a subset of
DPDs. However, we can find little reason to accept the invitation to
delineate the contours of that subset. Whether a DPD is ``incidental''
or ``general,'' it is subject to the compulsory license. Consequently,
the Office questions whether the concept of incidental DPDs as set
forth in the statute lends itself to further clarification in a
regulation of general application. The Office observes that the
legislative history of the DPSRA indicates that Congress recognized the
likelihood of several different types of digital transmission systems.
The Office also recognizes Congress' indication that certain DPDs may
be incidental to thepurpose of the transmission. S. Rep. No. 104-128 at
39. However, the Office notes that, except for one discrete example of
a type of service that would result in an incidental DPD, neither the
statute nor the legislative history attempts to offer criteria for
determining the purpose of a transmission.\8\
---------------------------------------------------------------------------
\8\ ``For example, if a transmission system was designed to
allow transmission recipients to hear sound recordings substantially
at the time of transmission, but the sound recording was transmitted
in a high-speed burst of data and stored in a computer memory for
prompt playback (such storage being technically the making of a
phonorecord), and the transmission recipient could not retain the
phonorecord for playback on subsequent occasions (or for any other
purpose), delivering the phonorecord to the transmission recipient
would be incidental to the transmission.'' S. Rep. No. 104-128 at
39.
---------------------------------------------------------------------------
The Office understands that neither the statute, the legislative
history, nor the proposals submitted by commenters clearly propose any
conclusive methods or criteria for determining the purpose of a
transmission. Moreover, the only consequence of a determination that a
digital phonorecord delivery is ``incidental'' is that a separate rate
must be set for an incidental phonorecord delivery (although, in any
event, it is inherent in the ratemaking provisions of Section 115 that
several different rates may be set for various kinds of digital
phonorecord deliveries). In setting rates, the Copyright Royalty Judges
are to distinguish between general and incidental DPDs, and they have
the authority to set different rates for different types of DPDs,
depending on their analysis of the economics of the service and the
other circumstances set forth in section 801(b)(1). The Office
therefore proposes that any determination regarding the purpose of a
transmission, upon which the determination of when a DPD is an
incidental DPD appears to turn, should be made in the context of a
factual inquiry before the CRJs, if such a determination proves to be
relevant.\9\
---------------------------------------------------------------------------
\9\ The Office also observes that nothing in the law prevents
the CRJs from setting different rates for various kinds of
incidental DPDs, or, for that matter, for various kinds of
``general'' DPDs.
---------------------------------------------------------------------------
C. Non-DPD Copies Under the Section 115 License.
RIAA and others acknowledged that certain copies made by
transmission services, such as undelivered Server-end Copies, are not
DPDs.\10\ Such parties have urged the Office to consider whether these
copies are covered by the Section 115 license.
---------------------------------------------------------------------------
\10\ The proposals put forward in this NPRM also conclude that
Server-end copies are not DPDs.
---------------------------------------------------------------------------
RIAA argued that delivery is not always required in order to
operate under the Section 115 license and that delivery merely
establishes the point at which copyright liability accrues. Thus, it
opined that Section 115 covers all copies of a phonorecord made during
a transmission, but that copyright liability attaches only upon the
distribution of a DPD. Under such an approach, a service would incur
liability only for those copies that are delivered and otherwise meet
the requirements for DPDs. No obligation for payment would accrue for
undelivered Server Copies. DiMA offered a similar approach in arguing
that Server Copies are covered within the license, proposing that
Server Copies are similar to professional manufacturing equipment used
by vinyl record pressing plants or CD stamping facilities, for which no
separate license is required. Other parties also argued that certain
non-DPD copies are not
[[Page 40811]]
infringing. Their argument was not that coverage for non-DPD copies
comes from Section 115 but rather that such non-DPDs fall within the
``fair use'' doctrine.\11\
---------------------------------------------------------------------------
\11\ That argument can also be made with respect to some DPDs.
The Office well understands how the fair use doctrine might operate
in this context. See Section 104 Report at 133-141. However, we note
that the determination of fair use requires a case-specific
analysis. Services that wish to rely on the fair use defense are
free to do so, knowing that they may have to litigate the issue and
that the outcome of such litigation is not necessarily clear. But
whether or not such use is fair does not prevent the inclusion of
such activity within the scope of the compulsory license. The
Section 115 license can operate as a safe harbor for services that
wish to use it without testing the question of whether their use is
actually fair. Use of the license need not be deemed an admission
that the licensed acts would otherwise be infringing. A fortiori, a
regulation clarifying that all copies made in the course of or for
the purpose of making a DPD are included within the Section 115
compulsory license should not be construed as an indication that all
such copies would be infringing but for their inclusion within the
scope of the license.
---------------------------------------------------------------------------
The Office recognizes that the Section 115 license has
traditionally provided coverage beyond those phonorecords made and
distributed to the public for private use, so long as such phonorecords
were used to achieve the primary purpose of making and distributing
phonorecords under the Section 115 license. Indeed, when it enacted
Section 115 in 1976, Congress stated that it intended the license to
cover ``every possible manufacturing or other process capable of
reproducing a sound recording in phonorecords''\12\ In fact, in the
recording industry, the right to make master recordings that are used
to make the phonorecords that are actually distributed has always been
understood to be included in the Section 115 license. Thus, the Office
tentatively concludes that Server-end Copies, as well as all other
intermediate copies, used to create DPDs under the Section 115 license,
perform an identical function in the world of digital phonorecord
deliveries and, for the same reasons, fall within the scope of the
license. Moreover, the Office notes that such copies are not
distributed and, as a result, they do not entitle the owner to separate
royalty payments. 17 U.S.C. 115(c)(1).
---------------------------------------------------------------------------
\12\ H. Rep. No. 94-1476, at 110. See also, The Copyright Act of
1976, Transitional and Supplementary Provisions, Sec. 106
(``...parts of instruments serving to reproduce phonorecords
mechanically ... such parts made on or after January 1, 1978,
constitute phonorecords.''
---------------------------------------------------------------------------
Threshold requirements for use of the Section 115 license
Under the above-stated proposals, the reproduction of Recipient-end
Buffer Copies and certain Recipient-end Complete Copies created by
Download Services, Limited Download Services, On-Demand/Interactive
Streaming Services, and Non-interactive Streaming Services would
satisfy the definition for DPDs. The question then arises whether these
Services satisfy the threshold requirement for the Section 115 license.
As expressed in Section 115(a)(1), ``A person may obtain a compulsory
license only if his or her primary purpose in making phonorecords is to
distribute them to the public for private use, including by means of a
digital phonorecord delivery.''
The Office understands that digital phonorecord deliveries are, by
the fact of their having been delivered, distributed within the meaning
of the copyright law. This view is supported by the legislative history
of the DPSRA which states that ``the digital transmission of a sound
recording that results in the reproduction by or for the transmission
recipient of a phonorecord of that sound recording implicates the
exclusive rights to reproduce and distribute the sound recording and
the musical work embodied therein.'' S. Rep. No. 104-128, at 27.
The Office takes notice that some commenters have asserted that
certain DPDs, known as ``locked content'' which may be encrypted,
otherwise protected by digital rights management, or degraded so as not
to substitute for the sale of a non-degraded recording, should not be
considered distributed until the product is ``unlocked.'' The Office
points out that under the proposed findings contained herein, all
delivered DPDs are considered distributed regardless of such so-called
``locks.''\13\ Despite the presence of such technological protections,
``locked content'' appears to satisfy the requirements for being both
phonorecords and DPDs. Of course, in a ratemaking proceeding a
compelling case might be made that the royalties for such locked
content should be significantly lower than for other DPDs or that no
royalties shall be due for any DPD unless and until it is ``unlocked.''
---------------------------------------------------------------------------
\13\ The Office understands that there may be other so-called
``locked content'' models which may involve the initial distribution
of significant quantities of data to a recipient, yet such data may
not satisfy the statutory requirements to be considered a
phonorecord until subsequent distribution of the remaining essential
data. In such cases, there would be no DPD until all of the required
data has been delivered.
---------------------------------------------------------------------------
Questions have also been raised as to whether reproductions which
enable the recipient to hear the sound recording at substantially the
same time as the transmission can be said to be for the primary purpose
of facilitating private use of a phonorecord. It seems apparent that in
the usual case, the recipient of a transmission of a phonorecord by an
online service under any of the models discussed herein will be making
a private use, even if that use is simply to hear the performance of
the phonorecord contemporaneously with the transmission. Similarly, it
appears that enabling the recipient to make such a private use is the
services' primary purpose in making phonorecords on the recipient's
device. Moreover, the Office notes that Congress intended the Section
115 license to cover DPDs ``regardless of whether the digital
transmission is also a public performance of the sound recording or any
nondramatic musical work embodied therein.'' 17 U.S.C. 115(d).
Rental, Lease or Lending.
In its initial petition, RIAA sought clarification on the question
of whether a limited download should be considered to be in the nature
of a rental, lease or lending. It has also asked the Office, in the
event it determines a limited download to be in the nature of a rental,
to clarify the interaction of section 109(b)(1)(A) of the Copyright
Act, regarding the ``first sale doctrine,'' with Section 115(c)(4).
The National Association of Recording Merchandisers and Video
Software Dealers Association (``NARM/VSDA'') opposed the idea that a
limited download could be treated as a rental, lease or lending. They
maintained that once a consumer receives a copy of a work, that work
becomes the property of the consumer and the consumer cannot be made to
pay for the use or possession of one's own property. Moreover, they
asserted that a limited download cannot qualify as a rental because the
recipient does not return anything at the end of the ``rental period.''
They viewed the transaction as substantially the same as the purchase
of a CD in a store, even though the limited download transaction would
by its very nature limit the use of the file for a period of time or a
specified number of plays. The opposition stemmed from a concern that
copyright owners would ultimately choose to limit a consumer's choice
to limited downloads only, thereby covertly asserting control over
private performances by limiting a consumer's right to control one's
own purchases.
In the course of the roundtable discussion, the purpose of which
was to refresh the record, the discussion turned to the question of
whether a limited download may qualify as a rental, lease or lending.
At that time, no participant advanced an argument that Download
Services constituted a rental, lease or
[[Page 40812]]
lending. This prompted the Register to specifically observe that
``nobody today is supporting that it's [a limited download is] a
rental, lease, or lending.'' Marybeth Peters, Register of Copyrights,
Section 115 Roundtable Transcript, at 26. No participants at the
roundtable, which included representatives from the recording
industries and NARM, disputed this conclusion. Thus, the Office sees no
reason to accept the invitation to consider limited downloads to be
acts of rental, lease or lending under Section 115(c)(4) because, as is
explained above, limited downloads easily fall into the definition of
DPDs and within the scope of the compulsory license for DPDs.
Therefore, the Office does not propose to issue a rule that considers
limited downloads to be in the nature of a rental, lease or lending.
Issues outside the scope of this proceeding.
A number of commenters raised a variety of issues that fall outside
of the scope of the current proceeding. For example, DiMA has
articulated a number of revisions that it would like Congress to adopt,
including provisions that would expressly exempt transient copies made
during the course of an authorized digital performance of a sound
recording and declare that server copies made to facilitate an
authorized public performance have no independent economic value, but
such matters are beyond the scope of the current proceeding.
During the early stages of this rulemaking, some commenters
proposed that the Office address additional issues. The Office
considers those issues not addressed herein to be either moot due to
the passage of time or peripheral, and does not propose to address them
in its final rule.
List of Subjects
37 CFR Part 201
Copyright, General provisions.
37 CFR Part 255
Compulsory license fees, Phonorecords.
Proposed Regulations
In consideration of the foregoing, the Copyright Office proposes to
amend parts 201 and 255 of 37 CFR, as follows:
PART 201--GENERAL PROVISIONS
1. The authority citation for part 201 continues to read as
follows:
Authority: 17 U.S.C. 702.
2. Amend Sec. 201.18 as follows:
a. By redesignating paragraphs (a)(2) through(a)(6) as (a)(4)
through (a)(8); and
b. By adding new paragraphs (a)(2) and (a)(3).
The revisions to Sec. 201.18 read as follows:
Sec. 201.18 Notice of intention to obtain a compulsory license for
making and distributing phonorecords of nondramatic musical works.
(a) * * *
(2) A person is entitled to serve or file a Notice of Intention and
thereby obtain a compulsory license pursuant to 17 U.S.C. 115 only if
his primary purpose in making phonorecords is to distribute them to the
public for private use, including by means of a digital phonorecord
delivery.
(3) For the purposes of this section, a ``digital phonorecord
delivery'' is each individual delivery of a phonorecord by digital
transmission of a sound recording which results in a specifically
identifiable reproduction by or for any transmission recipient of a
phonorecord of that sound recording, regardless of whether the digital
transmission is also a public performance of the sound recording or any
nondramatic musical work embodied therein. A reproduction is
specifically identifiable if it can be identified by the transmission
recipient, or if a device receiving it can identify the reproduction
for the transmission recipient, for purposes of rendering a performance
of the sound recording. A digital phonorecord delivery includes a
phonorecord that is made in the course of the transmission for the
purpose of making the digital phonorecord delivery, so long as it is
fixed for a sufficient period of time to be capable of being perceived,
reproduced, or otherwise communicated. A digital phonorecord delivery
also includes phonorecords which embody portions of a musical work so
long as those portions are, individually or in the aggregate,
sufficient to permit the recipient to render the sound recording which
embodies the musical work.
* * * * *
3. Amend Sec. 201.19 as follows:
a. By revising paragraph (a)(1) to add ``, including by means of a
digital phonorecord delivery.'' after ``of nondramatic musical works''.
b. By redesignating paragraphs (a)(3) through (a)(12) as paragraphs
(a)(4) through (a)(13); and
c. By adding a new paragraph (a)(3).
The revisions to Sec. 201.19 read as follows:
Sec. 201.19 Royalties and statements of account under compulsory
license for making and distributing phonorecords of nondramatic works.
(a) * * *
(3) For the purposes of this section, a ``digital phonorecord
delivery'' is each individual delivery of a phonorecord by digital
transmission of a sound recording which results in a specifically
identifiable reproduction by or for any transmission recipient of a
phonorecord of that sound recording, regardless of whether the digital
transmission is also a public performance of the sound recording or any
nondramatic musical work embodied therein. A reproduction is
specifically identifiable if it can be identified by thetransmission
recipient, or if a device receiving it can identify the reproduction
for the transmission recipient, for purposes of rendering a performance
of the sound recording. A digital phonorecord delivery includes a
phonorecord that is made in the course of the transmission for the
purpose of making the digital phonorecord delivery, so long as it is
fixed for a sufficient period of time to be capable of being perceived,
reproduced, or otherwise communicated. A digital phonorecord delivery
also includes phonorecords which embody portions of a musical work so
long as those portions are, individually or in the aggregate,
sufficient to permit the recipient to render the sound recording which
embodies the musical work.
* * * * *
PART 255--ADJUSTMENT OF ROYALTY PAYMENTS UNDER COMPULSORY LICENSE
FOR MAKING AND DISTRIBUTING PHONORECORDS
4. The authority citation for part 255 continues to read as
follows:
Authority: 17 U.S.C. 702.
5. Revise Sec. 255.4 to read as follows:
Sec. 255.4 Definition of digital phonorecord delivery.
A ``digital phonorecord delivery'' is each individual delivery of a
phonorecord by digital transmission of a sound recording which results
in a specifically identifiable reproduction by or for any transmission
recipient of a phonorecord of that sound recording, regardless of
whether the digital transmission is also a public performance of the
sound recording or any nondramatic musical work embodied therein. A
reproduction is specifically identifiable if it can be identified by
the transmission recipient, or if a device receiving it can identify
the reproduction for the transmission recipient, for purposes of
rendering a
[[Page 40813]]
performance of the sound recording. A digital phonorecord delivery
includes a phonorecord that is made in the course of the transmission
for the purpose of making the digital phonorecord delivery, so long as
it is fixed for a sufficient period of time to be capable of being
perceived, reproduced, or otherwise communicated. A digital phonorecord
delivery also includes phonorecords which embody portions of a musical
work so long as those portions are, individually or in the aggregate,
sufficient to permit the recipient to render the sound recording which
embodies the musical work.
Dated: July 10, 2008
Marybeth Peters,
Register of Copyrights
[FR Doc. E8-16165 Filed 7-15-08; 8:45 am]
BILLING CODE 1410-30-S