sirius xm – Techdirt (original) (raw)

from the it-shows-up-everywhere dept

This episode was supposed to come two weeks ago when the news was a little fresher, so by now you almost certainly know all about the copyright claims on Donald Trump’s appearances on the Howard Stern show. Though delayed by an outage at our cloud recording provider, the episode is still an interesting listen, with frequent Techdirt contributor Cathy Gellis joining the podcast to discuss the deeper question of whether copyright truly even exists on the interviews in the first place. Sorry for the delay, and we hope you enjoy it!

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Filed Under: cathy gellis, copyright, donald trump, howard stern, podcast
Companies: sirius xm

SiriusXM Loses For A Third Time On Public Performance Of Pre-1972 Works, This Time In New York

from the a-big-shakeup dept

A year ago, a bunch of folks in the recording industry hit on its latest strategy to squeeze more money out of services playing music: upset decades of settled copyright law, and pretend that pre-1972 works were subject to public performance rights. Suddenly lawsuits started flying like crazy, most directed at Sirius XM, with a few directed at Pandora. The key issue is the fact that pre-1972 sound recordings are not covered by federal copyright law, but a patchwork of (very messy) state laws and common law. Those state laws were never considered to have included public performance rights, but now people are going back to pretend they did. Of course, there would be a simple way to deal with this: just make those recordings subject to federal copyright laws, but the RIAA has fought hard against this.

In September, a judge ruled against Sirius XM and in favor of Flo & Eddie, the company that owns the rights to the music of the band The Turtles. In October, another California court agreed with the first (despite initially leaning in the other direction). Both of those were specific to California state law, however. But now, another month has gone by and Flo & Eddie has another big victory over Sirius XM, this time under New York’s law. You can read the ruling.

The judge, Colleen McMahon, acknowledges that this ruling completely upsets decades of accepted practice, but doesn’t seem too bothered by it all:

Of course, the conspicuous lack of any jurisprudential history confirms that not paying royalties for public performances of sound recordings was an accepted fact of life in the broadcasting industry for the last century. So does certain testimony cited by Sirius from record industry executives, artists and others, who argued vociferously before Congress that it was unfair for them to operate in an environment in which they were paid nothing when their sound recordings were publicly performed…. That they were paid no royalties was a matter of statutory exemption under federal law; that they demanded no royalties under the common law when their product as ineligible for federal copyright protection is, in many ways, inexplicable.

But acquiescence by participants in the recording industry in a status quo where recording artists and producers were not paid royalties while songwriters were does not show that they lacked an enforceable right under the common law – only that they failed to act on it.

Instead, she notes that the reason this is only coming up now is because Congress only created a performance right for digital music recently. That doesn’t really make much sense when you think about it. If the industry was really sitting on this potential goldmine of performance royalties for decades, wouldn’t it have made use of it before now?

Instead, the judge defaults to a purely maximalist approach, saying that absent any specific exemptions, we should assume that common law copyright in New York covers just about every damn thing.

Modern federal law supports the notion that an express carve-out is required in order to circumscribe the bundle of rights appurtenant to copyright

That should raise some serious First Amendment questions. In federal copyright law, the Supreme Court has argued that the First Amendment conflict is generally resolved through exceptions to copyright — including those established in common law, like fair use. Yet here, the court is basically saying, unless an exemption is clearly stated, everything is covered. That’s very troubling.

Of course, it’s likely that this, like the California cases, will be appealed, and it will all eventually end up before the Supreme Court. But, in the interim, don’t be surprised if “golden oldies,” including pretty much all music from pre-1972, start disappearing from a variety of services. Good job, recording industry, you may succeed in driving the classics into total obscurity.

Filed Under: copyright, new york, performance rights, pre-1972, pre-1972 sound recordings, the turtles
Companies: flo & eddie, pandora, sirius xm

Sirius XM Hit Again Over Pre-1972 Recordings

from the convinced-by-the-other-ruling dept

A few weeks ago, we wrote about how Sirius XM had lost its case concerning the public performance rights over pre-1972 sound recordings by the band The Turtles. As we noted, this ruling effectively upset decades of consensus about public performance rights for pre-1972 works. When that ruling came out, we noted that the judge, in a nearly identical case brought by the RIAA, appeared to be leaning in the opposite direction. It appears that the judge, Mary Strobel, read the other ruling and found it convincing enough to lean back in the other direction. While not a final determination in the case, Strobel has issued a ruling (pdf) that makes it pretty clear that Sirius XM is likely to lose, based on her agreement with that other ruling.

Having considered the additional authority, the papers submitted and arguments of counsel, the court is persuaded that it should change its tentative ruling.

The ruling itself is more of an essay of “on the one hand, on the other hand” arguments, rather than a typical judicial ruling (in many ways making it more readable), with the judge more or less suggesting that she’s not entirely comfortable with this outcome, but that based on the plain language of California’s state copyright law, this is the best way to read the law.

Of course, the real mess here is because of the different treatment of pre-1972 recordings. Congress should have fixed this years ago by just making pre-1972 recordings subject to federal copyright law. Except… the recording industry has actually fought hard against this. The hypocrisy here is huge. While the recording industry has fought so hard against making pre-1972 sound recordings subject to federal copyright laws, now they suddenly want aspects of federal copyright law (like public performance rights which did not exist under previous laws) to apply to those very same works. If Congress made it so those works were under federal copyright, there wouldn’t be an issue and all these works would be treated identically. But the truth is that the RIAA wants to keep these works out of federal copyright law to use them as a weapon against internet innovation. With rulings like these, it can hold companies like Pandora hostage, since those works wouldn’t be subject to compulsory rates. As always, it’s all about the RIAA seeking to hold back innovative services unless they’ll go bankrupt in paying the RIAA.

Filed Under: california, copyright, pre-1972, pre-1972 sound recordings
Companies: pandora, riaa, sirius xm

from the activist-judges... dept

We recently wrote about district court judge Philip Gutierrez ruling against Sirius XM on the issue of streaming pre-1972 recordings. As we noted at the time, the ruling appeared to upset what was considered more or less a settled issue. Pre-1972 sound recordings are not covered by federal copyright laws, but rather by a hodgepodge of state laws (and common law), but those have been entirely focused on reproduction/distribution and not on public performance. But this ruling changed all that. Sirius XM, of course, has already made it clear that it’s appealing the ruling, and on the other side, the victors in last week’s ruling, Flo & Eddie, have already moved to sue Pandora as well.

While I tried to express how much this ruling upsets what had been considered pretty much solid law, law professor Tyler Ochoa does an astounding job actually detailing the history and just what a big change this ruling is, calling it a “seismic” ruling on the scale of the 1906 San Francisco earthquake. Here’s just a snippet, though you really ought to read the whole thing, detailing historical case law that this ruling totally upends:

…in the early days of radio, sound recording copyright owners also tried to use state law to restrict unauthorized broadcasts of sound recordings (which, as explained above, were not eligible for federal copyright). In 1937, in Waring v. WDAS Broadcasting Station, 194 A. 631 (1937), the Pennsylvania Supreme Court held that state common law prevented the unauthorized broadcast of phonograph records (when the legend ?Not Licensed for Radio Broadcast? was printed on the records); but in 1940, in RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940), the U.S. Court of Appeals for the Second Circuit, in an opinion by Judge Learned Hand, held that common-law copyright prevented only the duplication of a sound recording, and that sale of phonograph records exhausted any common-law property right to prevent the unauthorized broadcast of the recording (notwithstanding the same restrictive legend). The Supreme Court denied certiorari, which effectively meant that broadcasters did not have to pay royalties to sound recording copyright owners to play their records on the radio. (Broadcasters still had to pay royalties to musical work copyright owners, under federal copyright law.)

… when sound recordings were added to the federal copyright act in 1972, Congress likewise limited the exclusive rights that were provided to sound recording copyright owners. Authors of most copyrightable works receive five exclusive rights: the right to reproduce the work, to adapt or prepare derivative works based on the work, to publicly distribute copies of the work, to publicly perform the work, and to publicly display the work. But broadcasters had enough lobbying power to block any action in Congress if it required them to pay more royalties. As a result, Congress gave sound recording copyright owners only the right to reproduce and distribute copies of the sound recording, and to prepare derivative works (by electronic manipulation of the sounds recorded, not by imitation or simulation). Congress did not give sound recording copyright owners any right to publicly perform their works. (The policy argument was that radio airplay served as free advertising for the sale of phonograph records.)

In other words, contrary to what you’ll hear today from the record labels and copyright maximalists, this ruling was not obvious or about Sirius XM, Pandora and others ripping off artists. This was actually about them upending what had been considered completely settled law. It was only in 1995 that Congress first established that copyright had any sort of “public performance” exclusivity — and then only for post-1972 recordings (remember, the recording industry itself has fought quite hard to exempt pre-1972 sound recordings from other aspects of federal copyright law) and only on digital streaming. So, to argue that pre-1972 state and common law somehow was intended to cover such a public performance right is almost impossible to fathom. Yet that’s what the court ruled.

And the impact could be immense. Beyond just Sirius and Pandora, it could hit a lot of others as well. In a big way, in part by undermining the very foundations of the DMCA safe harbors.

The ruling is a huge victory for sound recording copyright owners, which can use the ruling not only to negotiate higher negotiated rates for public performance of pre-February 15, 1972 sound recordings, but may also use such older recordings as leverage for negotiating higher rates for post-February 15, 1972 sound recordings. (Such negotiation tactics might be deemed to be copyright misuse, but it is unclear whether state law will recognize this federally-recognized defense.) Moreover, nothing in the decision limits the state-law violations to public performance by means of digital audio transmission, so the decision gives sound recording copyright owners the general public performance right in pre-February 15, 1972 sound recordings that they have always craved, but that was previously denied to them under federal law (and was assumed not to exist in state law under Whiteman). That means that traditional AM/FM broadcasters and television broadcasters, who are expressly exempt under federal law with respect to post-February 15, 1972 sound recordings, can expect to be sued next.

Sound recording copyright owners can also use the ruling to go after internet service providers. Section 512 of the federal Copyright Act provides that internet service providers are not liable for infringements committed by their users, so long as the service provider promptly complies with the ?notice-and-takedown? provisions of that section. But because Section 301(c) states that pre-February 15, 1972 sound recording copyrights are not preempted by the federal act, sound recording copyright owners have been suing internet service providers under state law, arguing that service providers are liable for reproduction and electronic distribution of pre-February 15, 1972 recordings under state law, and that the limitation of liability provided by federal law does not apply. Existing court decisions so far are split, with the New York Appellate Division holding that Section 512 does not apply to pre-February 15, 1972 sound recordings, because of the express terms of Section 301(c); while the U.S. District Court for the Southern District of New York has held that Section 512 does apply to pre-February 15, 1972 sound recordings, notwithstanding Section 301(c).

In the meantime, Ochoa notes, expect “oldies” to start disappearing from lots of different services as companies seek to limit their liability. Funny how yet another copyright ruling is likely to make music even more scarce.

Filed Under: california, copyright, history, pre-1972, pre-1972 sound recordings, public performance, radio, streaming
Companies: flo & eddie, pandora, sirius xm

Judge Rules Against Sirius XM On Pre-1972 Recordings

from the this-could-be-quite-a-mess dept

Last year, we wrote about the growing list of lawsuits against Sirius XM concerning the legal rights over pre-1972 recordings. As we’ve discussed, pre-1972 sound recordings are not under federal copyright law (for historical reasons too convoluted to go into now), but are covered under a hodgepodge of messy state copyright laws. Historically, those state laws have been focused on reproduction and distribution and not public performance. Furthermore, terrestrial radio stations have always been allowed to broadcast music without paying performance royalties (though they do pay songwriters/publishers). Post-1972 recordings can be streamed at statutory rates for non-interactive streaming (interactive streaming is a whole different game). It’s a bit of a mess, but based on all of this Sirius XM (and Pandora and others) felt fairly confident that they did not have to separately license public performance rights for pre-1972 recordings. There had been no issue about this at all, until the lawsuits started flooding in last year.

And, in a ruling this week, the judge has… ruled against Sirius XM in a manner that may force Sirius and Pandora to eventually have to pay out big. This lawsuit was the first one against Sirius, filed by Flo & Eddie, claiming that their California state copyrights were violated. The court basically found that, because California copyright law says that the copyright holder has “exclusive ownership” of the copyright, that includes public performance rights, despite no further explanation in the law designating that as an exclusive right under California’s copyright.

In short, the judge takes a very expansive “property rights” view of the situation, and assumes that California’s copyright law basically restricts everything.

Commonly, to have ?exclusive ownership? in something is to possess and control it and to not share that right to possess and control with others. See THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 619, 1260 (Houghton Mifflin Harcourt, 5th ed. 2011) (defining ?exclusive? and ?ownership?). The California legislature defines ?ownership? generally in the Civil Code in a manner consistent with the word?s usual and ordinary meaning??the right of one or more persons to possess and use [a thing] to the exclusion of others.? Cal. Civ. Code § 654. Thus, at base, Flo & Eddie has the right to possess and use its sound recordings and prevent others from possessing and using them. The plain meaning of having ?exclusive ownership? in a sound recording is having the right to use and possess the recording to the exclusion of others. There is nothing in that phrase to suggest that the legislature intended to exclude any right or use of the sound recording from the concept of ?exclusive ownership.?

The legislature does include a limitation on the ownership right in the statute?s text, ?the most reliable indicator of legislative intent.? See Esberg, 28 Cal. 4th at 268. An author has exclusive ownership in his or her sound recording ?against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.? Cal. Civ. Code § 980(a)(2) (emphasis added). In other words, ownership of a sound recording does not include the exclusive right to make ?covers? (i.e., recording the song with new instruments) ? any person can make a sound recording based on a copyrighted recording, without the permission of the owner, so long as they produce the sounds independently rather than recapture the actual sounds in the copyrighted recording.

Construing the meaning of ?exclusive ownership? in context with the rest of § 980(a)(2), which lists the above exception to the ownership right, the Court infers that the legislature did not intend to further limit ownership rights, otherwise it would have indicated that intent explicitly. Because the statute lists an exception, the Court should enlist the ?familiar rule of construction?[that] where exceptions to a general rule are specified by statute, other exceptions are not to be implied or presumed.? Geertz v. Ausonio, 4 Cal. App. 4th 1363, 1370 (1992) (citing In re Michael G., 44 Cal. 3d 283, 291 (1988). Courts should ?presume the Legislature included all the exceptions it intended to create.? Id. (citing Reynolds v. Reynolds, 54 Cal. 2d 669, 681 (1960)). If § 980(a)(2) had granted ?exclusive ownership? in sound recordings without a listed exception, the argument that some limitations on property rights were already inherent in the concept of sound recording ownership might have been more persuasive to the Court. See Opp. 6:21-7:4, 8:25-9:2. However, by finding it necessary to specify an excepted right to ownership in a sound recording, the legislature conveyed that limitations on ownership did not live within the concept itself, rather they required elucidation.

Accordingly, the Court?s textual reading of § 980(a)(2), giving the words ?their usual and ordinary meaning and construing them in context[,]? is that the legislature intended ownership of a sound recording in California to include all rights that can attach to intellectual property, save the singular, expressly-stated exception for making ?covers? of a recording.

Sirius XM pointed out the legal problems with this, in that California law did not have a public performance right, and thus the court is effectively making up a new right under to bolt onto California’s copyright law, but the judge isn’t buying it. Sirius further pointed out that California’s copyright law was designed to highlight what rights remained under its copyright law after the federalization of copyright for sound recordings, but again the judge isn’t buying it.

It’s inevitable that Sirius will appeal this ruling so it will be a while before we see where this actually ends up. Furthermore, in one of the other cases against Sirius, brought by the RIAA, it appears that the judge is leaning in the exact opposite direction. So, this situation is far from over.

Filed Under: california, copyright, flo & eddie, pre-1972, pre-1972 sound recordings, public performance, streaming
Companies: pandora, sirius xm

Recording Industry Wants To Have It Both Ways When It Comes To Pre-1972 Recordings

from the are-they-the-same-or-different? dept

Yet another story of hypocrisy by the recording industry? Why yes, indeed. For years now, we’ve been covering the issue of pre-1972 sound recordings. When Congress wrote the 1909 Copyright Act, it did not cover sound recordings, because Congress didn’t think that sound recordings qualified for copyright. In a statement released by Congress with the Act, it said it deliberately chose not to cover sound recordings, believing that they weren’t covered by the Constitutional limitation on “writings” for copyright protection:

Indeed, the report released with the Copyright Act expressly stated that Congress did not intend to protect sound recordings: “It is not the intention of the committee to extend the right of copyright to the mechanical reproductions themselves, but only to give the composer or copyright proprietor the control, in accordance with the provisions of the bill, of the manufacture and use of such devices.” According to one commentator, Congress had two principal concerns about sound recordings, leading it to decline to protect them. First, Congress wondered about the constitutional validity of such protection. The Constitution allows Congress to protect “writings,” and Congress was uncertain as to whether a sound recording could constitute a writing. Second, Congress worried that allowing producers to exclusively control both the musical notation and the sound recording could lead to the creation of a music monopoly.

That latter concern certainly was prescient. When Congress did a massive overhaul of copyright law in 1976, the recording industry was a much more powerful lobby, and so sound recordings were included. However, in the years between 1909 and 1976, many states had created their own (often bizarre) “state” copyrights to protect recordings. Rather than deal with this in an intelligent way, Congress basically said the new federal copyright rules would only apply to songs recorded in 1972 or after, and pre-1972 recordings would remain in a bizarre limbo. This has created a whole host of legal issues, and the Copyright Office has been trying to figure out what to do about this for years.

However, it appears that the recording industry would like it both ways. When it’s to their advantage, they claim that pre-1972 recordings should be treated just like modern song recordings. And when it’s not to their advantage, they insist that pre-1972 recordings should be treated wholly differently. In various hearings about the issue, the RIAA has been one of the most vocal in arguing against treating pre-1972 recordings as if they’re covered by federal copyright law. And, at the same time, they’ve argued in court repeatedly that the DMCA safe harbors don’t apply to pre-1972 recordings, making various music storage lockers liable for any such recordings they host. Some courts have rejected this theory, while others have accepted it. Either way, the recording industry has been pretty adamant that pre-1972 recordings should be treated differently, so they can sue whomever they want.

And yet… when various streaming music companies recognize this fact, and note that pre-1972 recordings aren’t covered under statutory licensing regimes… the recording industry freaks out. Michael Huppe, the President of SoundExchange — an organization created by the RIAA — is writing in Billboard magazine about how unfair it is that streaming services like Sirius XM and Pandora don’t pay statutory rates for pre-1972 recordings. Huppe complains that “this is not fair” and notes:

It’s a matter of simple fairness to offer equal treatment for all sound recordings.

Okay. If that’s true, then why aren’t SoundExchange and the RIAA out there in support of federalizing the copyright in pre-1972 recordings? Why aren’t SoundExchange and the RIAA agreeing to the fact that the DMCA’s safe harbors apply equally to pre-1972 recordings? I’m all for “equal treatment for all sound recordings” as well, but someone ought to point out to SoundExchange and the RIAA: you first.

Filed Under: copyright, pre-1972, royalties, sound recordings
Companies: pandora, riaa, sirius xm, soundexchange

from the it's-a-pile-on dept

Over the past few years we’ve covered a number of stories having to do with the copyright status of pre-1972 recordings. Because of a bit of a quirk in copyright law, sound recordings weren’t actually covered by federal copyright law in the US until after 1972. Instead, they were covered by a ridiculous patchwork of state laws — which is one reason why old songs that would have been in the public domain (even under today’s laws) had they been any other form of content, will be locked up for much, much longer. As you might imagine, some of those who hold the copyrights on those older songs have been trying to leverage this in somewhat ridiculous ways, such as arguing that the DMCA safe harbors don’t apply to pre-1972 songs.

In the last month and a half or so, it appears that everyone who holds a copyright on pre-1972 recordings has picked a new target: satellite radio giant Sirius-XM. You see, pretty much everyone has assumed for years (with good reason) that the statutory rates set by the Copyright Royalty Board for Sirius XM to pay SoundExchange naturally applied to all copyright-covered music. After all, once you can get past the ridiculous idea that three old judges get to decide how much satellite radio companies have to pay to play music, you’d at least think that the rules applied across the board.

Except, someone recently remembered those pre-1972 recordings. It started back in August, when lawyers for Flo & Eddie, of The Turtles, suddenly started demanding tremendous amounts of money from Sirius. That resulted in a “class action” lawsuit, seeking $100 million, being filed in California. But why stop with California when there are 49 other states? The same lawyers have followed the same basic lawsuit in other states as well. These, apparently, followed a tremendously obnoxious “PLEASE GOVERN YOURSELF ACCORDINGLY” letter.

Sensing an opportunity it was missing to suck up even more money, SoundExchange jumped into the fray with its own lawsuit. Now, SoundExchange is the organization which Sirius XM already pays all those statutory rate moneys to… and has for years… but it’s arguing that Sirius XM has been trying to avoid paying even the statutory rates on pre-1972 recordings, and that it’s done so for years, despite the CRB being clear that it does need to pay up.

Of course, this raises some interesting questions. If Sirius XM really has been not paying SoundExchange for pre-1972 recordings and hasn’t licensed those recordings from the copyright holders directly, then, um, it might be in serious trouble. If that’s the case, it sounds like an astounding strategic error on the part of Sirius XM. While it may have saved them from paying some amount of revenue to SoundExchange (estimated at 10 to 15%), opening themselves up to having to then license each of those works directly is a nightmare. At the very least, if Sirius XM had continued to pay SoundExchange’s statutory rates, it would have some sort of argument against the class action lawsuits. However, if it turns out that the satellite broadcaster had tried to avoid paying anyone… that’s probably not going to end well.

Sensing blood in the water (of course), all three of the major labels have now jumped in with their own lawsuit over this issue. Basically, it appears that Sirius XM is going to be fighting this battle against multiple players in multiple courts for a long time. Of course, you can bet a lot of this is just posturing over a different dispute. Sirius XM has been actively trying to route around SoundExchange (who it pays a tremendous amount to each year) and do direct licensing deals. In fact, Sirius XM sued SoundExchange for antitrust violations last year, claiming the organization was colluding to stop artists from opting-out of the SoundExchange deal and doing direct licensing deals with Sirius XM.

In other words… these are just the latest in a whole series of legal battles about how to split up the pie, with little regard to actually trying to make the pie bigger. Typical.

Filed Under: common law, copyright, flo & eddie, pre-1972, pre-1972 sound recordings, the turtles
Companies: riaa, sirius xm, soundexchange

First Amendment Concerns About Internet Radio Bill Not Just Overblown But Completely Backwards

from the let's-do-this-slowly dept

I’ve been tossing around a longish blog post about some of the controversy concerning the Internet Radio Fairness Act (IRFA) over the past month or so, but haven’t had a chance to put it all down in a blog post. I did, however, wish to pick up on a small thread that got a brief spark of attention from some people who don’t seem to understand legal stuff in the slightest. It started with musician David Lowery (you may remember him from past nonsensical rampages) claiming that Section 5 of the bill muzzled free speech and thus violated the First Amendment. This isn’t just wrong. It’s completely backwards. But the language and history here is a bit complex, so let’s dig in a bit.

First off, you have to understand that the amounts that satellite and internet radio pay for a “performance right” for broadcasting songs is not (generally) an individually negotiated rate, but rather is set by the Copyright Royalty Board, using a variety of questionable standards. As we’ve noted in the past, the CRB is notoriously bad at setting reasonable rates — and part of that is because part of its very charter is to block disruptive innovation if it has an impact on “generally prevailing industry practices.” Thus, it tends to set rates super high. This is exceptionally bad for innovation, competition and for artists in the long run, though I’ll get to that in another post. One thing that it more or less ensures is that these industries will be dominated by a very small number of super large players, because no one else will be able to afford the rates — and this effectively locks in the top guys. That’s what’s happened, as you have Sirius dominating satellite radio and Pandora dominating internet radio. But the rates are so crazy that it’s difficult to impossible for these companies to ever be profitable.

We’ll get back to that in a moment. But, now, go ahead and read the full text of the bill if you’d like. For this discussion, jump over to Section 5, entitled “Promotion of a Competitive Marketplace.” The section is relatively short.

SEC. 5. PROMOTION OF A COMPETITIVE MARKETPLACE.

(a) Limitation of Antitrust Exemptions-

(1) EPHEMERAL RECORDINGS- Section 112(e)(2) of title 17, United States Code, is amended–

(A) by inserting ‘, on a nonexclusive basis,’ after ‘common agents’; and

(B) by adding at the end the following: ‘Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).’.

(2) DIGITAL SOUND RECORDING PERFORMANCES- Section 114(e) of title 17, United States Code, is amended by adding at the end the following:

> ‘(3) Nothing in this subsection shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1). > > ‘(4) In order to obtain the benefits of paragraph (1), a common agent or collective representing copyright owners of sound recordings must make available at no charge through publicly accessible computer access through the Internet the most current available list of sound recording copyright owners represented by the organization and the most current list of sound recordings licensed by the organization.’.

The important thing to understand here is that there’s currently an antitrust exemption for SoundExchange, the organization that collects money from internet and satellite radio offerings (and sometimes has difficulty finding artists to pay them). SoundExchange basically needs an antitrust exemption because it is, by definition, a monopoly. What the bill is doing is something simple which is actually beneficial for artists. It’s saying that SoundExchange can’t use that antitrust exemption to try to stop artists from having the option, if they want to go do direct deals with internet or satellite radio providers. The second part is similar, but not referencing an antitrust exemption. It’s just saying that any group that is representing multiple artists can’t seek to block other artists from choosing to do a direct deal.

Sirius XM, in particular, has been trying to negotiate direct deals that route around SoundExchange. Now, why would artists ever want to negotiate directly with a Sirius or Pandora when they’ve already got the Copyright Royalty Board forcing ridiculous high rates on those providers? It’s not as if those sites will choose to pay more directly. However, what they can do is offer better service than SoundExchange. That is: they can pay faster, they can provide more data and details, better access to users, etc. And that’s what both companies are attempting to do. Also, for artists who actually act as their own label, they can actually make more money because they’re cutting out a lot of middlemen who take their cut (it’s convoluted, but click that link to see the details).

So, short version: it’s certainly not for everyone, but some artists might find it beneficial to go direct. If they choose not to, they can still have SoundExchange collect and distribute their money and that’s fine as well.

Now, jump to March of this year… when Sirius sued SoundExchange and A2IM (the RIAA of indie labels) claiming antitrust violations. Sirius argues in its lawsuit that SoundExchange and A2IM conspired and colluded to effectively forbid artists from going direct. Because proving direct collusion is difficult, Sirius’ lawsuit is filled with circumstantial evidence, which doesn’t prove an antitrust violation, but infers that there might be fire behind the smoke. The goal, there, is to get to discovery to try to suss out some smoking guns of collusion. So, the lawsuit includes various bits of circumstantial evidence, including a number of artists and indie labels that Sirius reached out to who flat out told them that A2IM prevents direct licenses, or that they’d have to first ask A2IM for permission. As part of the circumstantial evidence, Sirius also points to this blog post from A2IM that argues against doing direct licenses.

That lawsuit is still crawling along, so it’s unclear if it’s going anywhere. Honestly, proving collusion is crazy difficult, and I doubt Sirius will succeed, but some of that circumstantial evidence is eye-opening.

And that leads us to Section 5 of IRFA. As you can read above, what it makes clear is that the existing antitrust exemption cannot be used to “prohibit, interfere with, or impede direct licensing” and similarly that any group acting for some artists could violate antitrust laws by blocking the free will of other artists to negotiate their own deals. In other words, the bill makes it clear that if A2IM or SoundExchange really are colluding to impede artists from choosing to do direct deals, that could be seen as an antitrust violation. This, then, is about protecting artists and indie labels from large organizations like SoundExchange or A2IM, should they try to block those artists and labels from voluntarily doing direct deals.

So you would think that self-declared, if often confused, “defender of artists rights,” David Lowery, would like that. But he doesn’t for reasons that suggest a serious misreading of the bill or misunderstanding of this background. He points to the language, and then at the text of the Sirius lawsuit, apparently not understanding the nature of circumstantial evidence, and argues that “This is the type of explanatory speech — not conduct — that Sirius XM thinks is illegal and IRFA definitely would outlaw.” The only problem with this statement is, well, everything. It’s wrong. Nothing in the bill would outlaw that kind of speech. At all. Nor does Sirius’ lawsuit claim that such explanatory speech is illegal. Instead, it is arguing that that blog post, along with a host of other circumstantial evidence, is enough to suggest there’s a fire somewhere providing all that smoke. Under IRFA, such blog posts would still be perfectly legal, so long as A2IM didn’t also use those blog posts to collude and directly hinder copyright holders from doing direct deals.

All that Section 5 of the bill is saying is that the A2IMs and SoundExchanges of the world can’t try to hide behind antitrust exemptions to argue that such coercion to block artists from doing direct deals is free from antitrust scrutiny. And, outside of the exemption, they also cannot restrict artists from doing direct deals.

And yet, Lowery (and some of his followers) have taken up the banner claiming that this is a First Amendment violation and that it censors free speech. What he seems to be missing is that the only speech it blocks is speech that is used to collude or to block artists from voluntarily making a deal. Under Lowery’s interpretation of the bill, collusion by large companies to force independent artists and labels to do business their way only is legal… because it’s free speech to collude..

That’s kinda nutty. His argument is, basically: legalize collusion!

A few weeks ago, Lowery gleefully confronted supporters of the bill with this argument at the Future of Music Coalition Conference, which led bill sponsor, Senator Ron Wyden, to hit back and claim that, as one of the strongest defenders of the First Amendment, he’d never support a bill that took away free speech rights. He promised Lowery that he’d review the specific language of the bill, and if there were any interpretations that impacted free speech rights, he’d fix them.

And he followed through with that, asking the Congressional Research Service to look into the matter, which it did. In a note published last week, they make it quite clear that it is extremely unlikely that there would be a First Amendment issue raised by the bill:

… it seems unlikely that, in practice, Section 5 would impinge upon First Amendment rights for a few reasons.

They then go on to detail those reasons — which can be summed up as, Congress has the right under its authority to regulate interstate commerce, to create antitrust law that blocks collusion (as it applies to interstate commerce). Basically, since antitrust law is Constitutional, so is Section 5:

The antitrust laws are generally considered to comport with the First Amendment, because though the Sherman Act may restrain speech on occasion, the restraint is incidental to Congress’s legitimate goal of maintaining a free market. In the case of Section 5, Congress would arguably be creating a similar prohibition, particularly since the bill specifically references the antitrust laws. As noted above, Section 5 would generally prohibit copyright owners acting jointly from taking any action to interfere with direct licensing negotiations. This provision appears to be intended to further the government’s interest in preserving the rights of individual copyright owners to negotiate directly with potential licensees without interference from entities like member-based royalty collection organizations. It could be argued that this is similar to Congress’s intent to preserve a free market by enacting the antitrust laws. Under Section 5 an individual copyright owner would have the option, as she always has, of negotiating royalty rates individually or collectively, but with an added protection from interference on the part of groups of copyright owners that might seek to prevent her from exercising her individual rights. If the provision is read to prohibit activity and speech similar to, and not broader than those prohibited by the Sherman Act, Section 5 likely would not violate the First Amendment for similar reasons that the antitrust laws do not violate the First Amendment. The restrictions on speech may be interpreted to be incidental to a valid exercise of Congressional authority to regulate interstate commerce.

In other words, exactly what we were saying: unless you’re arguing that collusion is legal because it’s free speech, the argument that Section 5 violates free speech is quite unlikely.

Because the CRS is quite thorough, it also does work through some scenarios under which the bill might possibly have Free Speech implications. But the only thing it can come up with is that a court would have to somehow interpret Section 5 to restrict speech beyond what’s in antitrust laws (i.e., beyond activity designed to restrain trade). Considering how vocal bill supporters have been about this clause not being intended to go beyond the law, it would be somewhat incredible for a court to have that interpretation.

Of course, to make things even more amusing, Lowery himself posted about this CRS destruction of his key argument… and declared victory. Why? Because the CRS report, in its typically even-handed manner, discusses Lowery’s scenario, of a blog post potentially violating Section 5, and notes that “though this hypothetical presents a broad interpretation of the language of Section 5, it is not an implausible one.” Lowery cuts off the text at that point and declares victory… conveniently leaving out the detailed explanation of why this isn’t a First Amendment violation (as explained above).

The confusion, it appears, stems from yet another misreading by Lowery of the CRS report. He interprets the “not implausible” claim to refer to his overall argument that the bill restricts free speech rights. But that is not what it is saying. It is saying that he is right that if a blog post somehow interfered with someone else doing a direct licensing deal — i.e., restricted interstate trade under existing laws — then it could violate the Act… but as such would not likely violate the First Amendment. So, the conditions here are that the blog posts themselves would have to actually impede trade, which the CRS report itself notes would require a very broad interpretation of the bill, one that is quite unlikely.

In the end, this appears to be much ado about nothing. The original complaint was a misread, which the CRS report clearly corrects, and Lowery doubles down by then misunderstanding the report itself. Still, from this vantage point, it’s been rather amusing to watch a somewhat confused David Lowery thinking that he’s “protecting artists,” while he’s been arguing against a provision in the bill that is actually 100% designed to protect artists against collusion to block them from doing their own deals — deals which (especially for truly independent artists) could be more lucrative. It would be almost comical, if it weren’t that a bunch of artists who haven’t understood all this have been parroting Lowery’s claims, believing that they’re arguing for their own self-interest, when the reality is that they’re literally arguing that organizations like SoundExchange and A2IM should be able to collude and block their ability to negotiate favorable deals.

Filed Under: antitrust, collusion, david lowery, first amendment, free speech, internet radio fairness act, irfa, ron wyden
Companies: a2im, sirius xm, soundexchange

SoundExchange & A2IM Sued For Antitrust Violations By Sirius

from the sirius-charges dept

Well, well. Last fall, we discussed how Sirius XM was aiming to cut out SoundExchange and try to do deals directly with labels for performance rights. There’s some history here. SoundExchange was set up and spun out of the RIAA specifically to collect performance royalties from Sirius XM and emerging internet streaming offerings. Radio doesn’t pay performance rights to musicians (they just pay mechanicals to songwriters/publishers), and while the RIAA has wanted that to change for years, it used the “newness” of satellite and the internet to suddenly claim that this extra tax must be paid there, and then set up SoundExchange to collect it. The “rate” was a statutory rate set by the Copyright Royalty Board (CRB), which involved a huge fight, with SoundExchange basically demanding a significant cut of everyone’s revenue. The CRB eventually agreed to a sliding rate starting at 6% and moving up to 8% over time — much, much lower than what SoundExchange wanted (there was an even more intense fight over internet rates, but that is a separate issue).

Even with this “lower” rate, Sirius XM provides a huge chunk of SoundExchange’s revenue — around $200 million last year alone. Realizing that the deal that set up SoundExchange noted that it was “nonexclusive,” Sirius sought to cut SoundExchange out of the loop and go direct to labels. Obviously, Sirius’s goal is to pay less in royalties, and that led some to wonder why a label would want to do it, since the royalty rate would be lower. Except, it’s a little more complex than that.

Sirius notes that in cutting out the middleman, you avoid SoundExchange’s (hefty) administrative fee, as well as its notoriously opaque payment process which has left many labels scratching their heads. SoundExchange provides little information as to why artists get paid what they’re paid, leaving open significant concerns that the money is not being accounted for properly. Similarly, SoundExchange has been notorious for having “difficulty” finding artists — though I will say that they’ve definitely been improving a lot on that front, and really have made a huge effort to reach out to artists. Still, there certainly could be benefits for labels to go direct. Cutting out the middleman, having more relevant and accurate data, as well as more timely payments could certainly be worth it. In fact, Jeff Price at TuneCore explained how indie artists who were their own labels would almost certainly benefit by going direct.

However, the wider industry flipped out and closed ranks, with SoundExchange, the RIAA and A2IM (like the RIAA but for indie labels) all urging labels not to have anything to do with direct deals. Sirius XM looked at all of this and saw a clear antitrust violation as it certainly feels like the entire industry colluding against it. To that end, it has sued SoundExchange and A2IM for antitrust violations — and even gone so far as to ask for SoundExchange to be “dissolved and unwound.” While the actions of other music industry trade groups — including the RIAA, NARAS, AFRTA and AFM — are mentioned in the lawsuit, they are not listed as defendants (yet). The focus is very much on SoundExchange and A2IM, whose boss, Rich Bengloff, sits on the board of SoundExchange (along with a bunch of RIAA folks).

In the filing (embedded below), Sirius reports on multiple attempts it made to sign deals with indie labels, in which it was repeatedly rebuffed with claims about how Rich or A2IM had urged them not to do direct deals.

For example, Sirius XM’s direct license outreach to independent label Bandit Records was short-circuited when a representative of Bandit Records told Sirius XM that“[w]e’re members of A21M and Merlin. I think that prevents a direct license.” Upon information and belief, one or both Defendants communicated with Bandit Records (or through its representative Merlin Network) and pressured them to refuse a direct license.

O. Sirius XM’s effort to engage in direct license discussions with independent label Unitedlnterests was similarly derailed when, on August 30, 2011, a representative of Unitedlnterests wrote: “I heard that XM was making these requests. I will look at the license,**but will also confer with A2IM and other indies.**” Upon information and belief, UnitedInterests pursued those discussions and therefore agreed with A2IM and/or other record companies not to enter into a direct license.

Sirius XM’s approach to independent label CA Management was stopped in its tracks when, on October 27, 2011, a representative of CA Management told Sirius XM that he was “getting mixed reviews about the best way to handle” the direct license offer. Several weeks later, on November 15, 2011, he told Sirius XM that “the RIAA has asked everyone to hold off.”CA Management never entered into a direct license with Sirius XM because, upon information and belief, after CA Management communicated with RIAA, it agreed to participate in the industry boycott.

There are more, similar, examples in the filing. There’s also a discussion of some indie labels who did sign on, but then backed out, claiming pressure from A2IM. From the filing:

Defendants’ unlawful efforts have also extended to extracting agreements from labels that have already signed direct licenses to attempt to back out of them. By way of example. on November 28. 2011. Sirius XM entered into a direct license with Paracadute, TMB Productions, Michael Doughtv. and Michael Viola. On February 9, 2012, Paracadute and TMB Productions requested that they be released from the deal. Surprised by this request, Sirius XM’s agent asked Darren Paltrowitz, the person with whom they had negotiated the deal, for an explanation. Mr. Paltrowitz’s, response was an e-mail with talking points strikingly similar to the Defendants’ press release, which Mr. Paltrowitz indicated were supplied by the bands’ business manager. That business manager is Perry Resnick, an artist manager with RZO LLC, and a longtime member of the SoundExchange Board. After further discussions, on February 22, 2012, Mr. Paltrowitz wrote that he “relayed [Sirius XM’s] feedback to RZO, and they — per conversations with A2IM and other folks beyond SoundExehange — stand their ground about wanting us to opt out” of the direct license. That same day. Mr. Paltrowity cut and pasted an email he received from Mr. Resinick that stated: “I know for a fact that Rich Bengloff, the head of A2IM … is against this. Rich and I have had this exact conversation, and are both in agreement that SoundExchange is the better way to go.”

Of course, there are a few reasons why SoundExchange and its board members would be so against this. As noted earlier, they still think that the royalty rates should be much higher, and have indicated multiple times that in the next round of ratesetting at the CRB, they are going to push for royalty rates double to triple of what Sirius XM is already paying. That’s certainly part of why Sirius would like to cut them out of the picture. But, as some have noted, doing direct deals outside of SoundExchange doesn’t just let Sirius avoid whatever crazy rates the judges at the CRB choose out of thin air, but it allows them to argue that the actual market rate is lower. You see… the way the CRB works is that it’s supposed to try to set a statutory rate that is effectively what the market would choose on its own. Historically, since there were no market-based deals, it had nothing concrete to base its decision on, other than what SoundExchange or Sirius told the judges. However, if Sirius is able to cut direct deals (and do them at an even lower rate) then when the CRB hearing comes around, Sirius now has empirical evidence of a lower market rate. That’s a pretty big deal.

Honestly, I’m not sure either side in this fight comes out looking good. It’s really just a fight about who pays how much, and who gets a cut. This is the kind of messy thing that happens when a clueless Congress decides that a clueless judicial board should magically “set rates” based on nothing in particular. Sirius XM is hardly an angel in this fight, but based on some of the quotes in the filing, there may be something of a case here — though proving full on antitrust violations are not easy.

The real issue, it seems, is that groups like A2IM are supposed to represent the industry, but are not supposed to be a central point of collusion for the industry, driving policy decisions back to the labels. That’s coordinated effort among competitors that could very well cross the line. The close-knit nature of the SoundExchange board makes all of this even more complicated (and again raises serious questions why Congress ever allowed SoundExchange to be birthed from the RIAA, rather than being truly independent in the first place). I can’t image a court would actually dissolve SoundExchange, but if it turns out that this lawsuit has legs, things could get very, very messy in the industry (and it certainly could shake up A2IM in a big way as well). This is one worth paying attention to.

Filed Under: antitrust, collusion, copyright, direct license, performance rights, rich bengloff, royalties, satellite radio
Companies: a2im, riaa, sirius xm, soundexchange

Court Won't Move Patent Lawsuit Out Of East Texas, Despite Plaintiff's 'Ephemeral' Connection To Texas

from the we're-all-from-east-texas-now dept

As has been discussed plenty of times, a disproportionate number of patent lawsuits are filed in East Texas, under the belief that the venue is the most friendly to patent holders (there is some debate lately about how accurate this is, but either way it remains, by far, the most popular place for patent lawsuits). This happened even in cases where there was clearly no reason for the case to be heard in Texas. My favorite is the story of two San Jose, California companies, whose offices were blocks away from each other… who ended up in an East Texas court to fight a patent battle. Two years ago, the Federal Circuit suggested courts should be more willing to transfer cases that don’t really belong in their district — a clear warning shot at East Texas.

In response, there were a few cases moved to more convenient locations. However, there were also some rather transparent efforts by patent holders to convince a court that these lawsuits should remain in East Texas. For example, some patent holders started suing lots of companies all over the place, so they could argue that East Texas was just as convenient as anywhere else. Then there are the cases that sue a bunch of big companies elsewhere, and then find some random small company in East Texas to include as well — sometimes picking companies that don’t even exist.

One trick that’s getting popular is to set up a shell corporation in East Texas right before filing the lawsuit. Unfortunately, it looks like this particular tactic is working. We recently mentioned one such case involving a company from Michigan that “moved” in name only to Texas right before filing the lawsuit. The judge in East Texas refused to move the case, saying that the move could have been for any reason, such as the “tax benefits.” As I noted at the end of that post, if you want to make some money, now is a good time to set up a “business” that helps others quickly set up an “office” in East Texas, because it’s about to get popular.

It’s now about to get even more popular.

In another case with a very similar story — involving a patent holding company who sued Apple, Sirius XM, Archos and others over a patent — the patent holder, one Personal Audio LLC, had only set up offices in Texas two months before the lawsuit and has no employees in Texas. In fact, the “office” just happens to be in the same office as the patent holders’ lawyers. The district court refused to transfer to Massachusetts (despite a bunch of the witnesses being in Massachusetts), saying that East Texas was now the “home venue” for the company, so it made sense. The companies appealed, but it looks like the Federal Circuit has agreed with the lower court. Even while noting that Personal Audio’s presence in Texas is “both recent and ephemeral,” it refused to transfer the case, saying that the defendants failed to make a “compelling showing that Massachusetts is a more convenient forum.”

The key point may have been that none of the sued companies were based in Massachusetts — so companies looking to transfer cases out of East Texas might want to think about their home districts as possible destinations. However, the fact that so many witnesses were in Massachusetts and that the patent holder clearly was not really in Texas seems like reasonable arguments for moving the case. Apparently the courts feel differently.

Filed Under: east texas, patents
Companies: apple, archos, personal audio, sirius xm