[Federal Register: March 9, 2001 (Volume 66, Number 47)]
[Proposed Rules]
[Page 14099-14103]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09mr01-12]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 255
[Docket No. RM 2000-7]
Mechanical and Digital Phonorecord Delivery Compulsory License
AGENCY: Copyright Office, Library of Congress.
ACTION: Notice of inquiry.
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SUMMARY: The Copyright Office of the Library of Congress requests
public comment on the interpretation and application of the mechanical
and digital phonorecord compulsory license, 17 U.S.C. 115, to certain
digital music services.
DATES: Comments are due no later than April 23, 2001. Reply comments
are due May 23, 2001.
ADDRESSES: If sent by mail, and original and ten copies of comments and
reply comments should be addressed to: Office of the Copyright General
Counsel, PO Box 70977, Southwest Station, Washington, DC 20024. If hand
delivered, an original and ten copies should be brought to: Office of
the Copyright General Counsel, James Madison Memorial Building, Room
LM-403, First and Independence Avenue, SE, Washington, DC 20559-6000.
FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or
William J. Roberts, Jr., Senior Attorney for Compulsory Licenses,
Copyright Arbitration Royalty Panel, PO Box 70977, Southwest Station,
Washington, DC 20024 Telephone: (202) 707-8380. Telefax: (202) 252-
3423.
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 is 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. 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 copyright holders of nondramatic musical
works, the exclusivity of the reproduction right and distribution right
are limited by the compulsory license of section 115 of the Copyright
Act. Often referred to as the ``mechanical license,'' section 115
grants third parties a nonexclusive license to make and distribute
phonorecords of nondramatic musical works.
The license can be invoked once a nondramatic musical work embodied
in a phonorecord is 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 rights in
the musical work remain exclusive, and the compulsory license does not
apply. Once it does occur, the license permits anyone to make and
distribute phonorecords of the musical work provided, of course, that
they comply with all of the royalty and accounting requirements of
section 115. It is important to note that the mechanical 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, or obtain permission from
the copyright owner to use a preexisting sound recording. One who
obtains permission to use another's sound recording is eligible to use
the compulsory license for the musical composition that is performed on
the sound recording.
The mechanical license was the first compulsory 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 only some technical modifications. However, in 1995, Congress
passed the Digital Performance Right in Sound Recordings Act (``Digital
Performance Act''), Public Law 104-39, 109 Stat. 336, which amended
sections 114 and 115 of the Copyright Act to take account of
technological changes which were beginning to enable digital
transmission of sound recordings. With respect to section 115, the Act
expanded the scope of the mechanical license to include the right to
distribute, or authorize the distribution of, a phonorecord by means of
a digital transmission which constitutes a ``digital phonorecord
delivery.'' 17 U.S.C. 115(c)(3)(A). 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 * * *.'' 17 U.S.C. 115(d).
As a result of the Digital Performance Act, the mechanical license
applies to two kinds of disseminations of nondramatic musical works:
(1) The traditional making and distribution of physical, hard copy
phonorecords; and (2) digital phonorecord deliveries, commonly referred
to as DPDs. However, in including DPDs within section 115, Congress
added a wrinkle by creating a subset of DPDs, commonly referred to as
``incidental DPDs.'' It did this by requiring that royalty fees
established under the compulsory license rate adjustment process of
chapter 8 of the Copyright Act 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). However, Congress did not define
what constitutes an incidental DPD, and that omission is the source of
today's Notice of Inquiry.
As required by the Digital Performance Act, in 1996 the Library of
Congress initiated a Copyright Arbitration Royalty Panel (``CARP'')
proceeding to adjust the royalty rates for
[[Page 14100]]
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 governing section 115 royalties for
DPDs. 64 FR 6221 (February 9, 1999). Section 255.5 of 37 CFR
establishes royalty rates for DPDs ``in general,'' while Sec. 255.6 of
the rules expressly defers consideration of incidental DPDs. And
Sec. 255.7 sets the time table for rate adjustment proceedings for
general DPDs and incidental DPDs, providing 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.
Petition for Rulemaking
1. RIAA Petition
On November 22, 2000, the Copyright Office received 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 requests that the
Office resolve, through a rulemaking proceeding, the issue of what
types of digital transmissions of prerecorded music are general DPDs,
and what types are incidental DPDs. In addition, RIAA petitions the
Library of Congress to conduct a CARP proceeding to set rates for
incidental DPDs. MP3.com, Inc. (``MP3.com''), Napster, Inc.
(``Napster''), and the Digital Media Association (``DiMA'') responded
to the RIAA petition. The Office also received a petition to convene a
CARP to set rates for general DPDs and incidental DPDs from the
National Music Publishers Association, Inc. and the Songwriters Guild
of America (collectively, ``NMPA/SGA'').
The RIAA petition focuses on two types of digital music deliveries:
``On-Demand Streams'' and ``Limited Downloads.'' RIAA defines an ``On-
Demand Stream'' as an ``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.'' RIAA Petition at 1. A ``Limited Download'' is defined 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.'' Id. RIAA asserts that a rulemaking
is necessary to determine the status of On-Demand Streams and Limited
Downloads (i.e. whether they are general DPDs or incidental DPDs)
because record companies and music publishers cannot reach agreement as
to their treatment under section 115.
According to RIAA, music publishers take the position that both On-
Demand Streams and Limited Downloads implicate their mechanical rights.
In RIAA's view, On-Demand Streams may be incidental DPDs, for which
there are currently no established royalty rates. RIAA therefore
requests that the Office determine whether On-Demand Streams are
incidental DPDs and, if they are, to convene a CARP to set rates for
these incidental DPDs.
RIAA also submits that for services offering On-Demand Streams and
Limited Downloads to work, it is necessary that the section 115 license
be interpreted in such a way as to cover all the copies necessary to
operate such services.\1\ In general, the operator of a service must
make multiple phonorecords of musical works on its servers, and those
works may be further reproduced, at least in part and for short periods
of time, as part of the transmission process. While some of these
reproductions may be exempt from copyright liability under 17 U.S.C.
112(a), RIAA asserts that it is likely that certain reproductions
necessary for the operation of the services are not exempt and that
they should be covered by the section 115 license.
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\1\ It would probably be more precise to characterize such
``copies'' as ``phonorecords,'' since presumably they include the
fixation of sounds. Compare the definitions of ``copies'' and
``phonorecords'' set forth in 17 U.S.C. 101. However, because
discussions of this issue usually refer more colloquially to
``copies,'' we will frequently use that term in this notice.
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With respect to Limited Downloads, RIAA suggests that they may be
either (1) incidental DPDs or (2) more in the nature of record rentals,
leases or lendings. The section 115 license authorizes the maker of a
phonorecord to rent, lease or lend it, provided that a royalty fee is
paid. 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 notes 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. 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. 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 sum, RIAA asserts that it is unclear whether the section 115
license permits
[[Page 14101]]
all of the activities necessary to make On-Demand Streams or Limited
Downloads, and if so, at what royalty rates. Consequently, RIAA
petitions 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.
Napster opposes RIAA's petition and urges the Copyright Office to
defer to Congress, which Napster contends is the appropriate forum for
resolving the issues raised by the petition. MP3.com submits that the
Office should 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.\2\ If they are, MP3.com also
petitions the Library to convene a CARP to ``determine the appropriate
rate or rates (if any)'' for incidental DPDs.
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\2\ MP3.com does not take a position as to whether there should
be a rulemaking for Limited Downloads as well, since this is not
part of its business.
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MP3.com also asks the Copyright Office to consider additional
matters in a rulemaking proceeding. First, MP3.com questions whether
distinctions can and should be drawn among streaming audio services.
MP3.com's service streams music to recipients who select the streams
from a ``locker'' containing the recipients'' personally purchased
music collections. MP3.com requests that the Office consider whether
this type of service--where the copyright owner has received
compensation from the recipient who has already purchased the music--
should be distinguished from a service that indiscriminately transmits
streams of music to the public at large.
Second, MP3.com requests that the Office consider the effect of the
decision to defer adoption of a royalty rate for incidental DPDs to a
later date, and what effect that has on services that are currently
streaming music. Finally, MP3.com requests that the Office reconsider
its current procedural regulations for invoking and complying with the
section 115 license with respect to incidental DPDs.
Like RIAA and MP3.com, DiMA is especially concerned with the status
of copies of musical works made in the course of streaming. In
particular, DiMA notes 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
urges 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 submits that either this should be resolved in the section
104 study, or the Office should conduct a separate rulemaking
proceeding devoted solely to the issue. DiMA suggests, however, that
the complexity of the issue counsels for legislative action rather than
agency interpretation of the existing statute.
The NMPA/SGA petition does not request any rulemaking from the
Copyright Office and simply requests that the Library convene a CARP to
set rates for both general DPDs and incidental DPDs. As discussed
above, the year 2000 was a window year for filing such petitions with
the Library.
Notice of Inquiry
The foregoing discussion of the petitions and filings with the
Copyright Office reveals that there is considerable uncertainty as to
interpretation and application of the copyright laws to certain kinds
of digital transmissions of prerecorded musical works. It is also
apparent that the impasse presented by these legal questions may impede
the ability of copyright owners and users to agree upon royalty rates
under section 115 for both general DPDs and incidental DPDs. Therefore,
the Copyright Office deems it appropriate to seek public comment on the
advisability of conducting a rulemaking proceeding and on the issues
that would be addressed in such a proceeding.
1. Agency Action
Before addressing the matters raised in the parties' petitions and
comments, a threshold matter must first be resolved. It appears that
when Congress passed the Digital Performance Act in 1995 and amended
the section 115 mechanical license, current delivery mechanisms for
digital transmission of musical works were unknown. Consequently, On-
Demand Streaming and Limited Downloads, as described in the RIAA
petition, and the applicability of the section 115 license to these
services do not appear to have been anticipated. DiMA and Napster
assert that to fully address the copyright implications of all aspects
of these services, the law needs to be reconsidered and amended. While
amendment of the law is a time-consuming proposition, Congress does
have the power, unlike the Copyright Office, to balance the specific
concerns of the interested parties and enact a legal regime that
addresses those concerns. Must or should the Copyright Office defer to
congressional action on some or all of the issues raised by the RIAA
and MP3.com petitions? In other words, are there matters raised by
these petitions that the Office lacks statutory authority to resolve?
If the Office does have authority to interpret the meaning of section
115 as applied to these new services, is agency rulemaking the best
forum for addressing such matters, or is congressional (or judicial)
action more appropriate? We seek public comment on the extent of our
authority to act, as well as the advisability of exercising any such
authority.
2. Issues Presented
Assuming that the Copyright Office does have the authority to act,
and assuming that a rulemaking proceeding is the best forum, the RIAA
and MP3.com petitions raise a number of questions. Central to RIAA's
petition is a determination of the meaning of an incidental DPD under
section 115. Is it possible to define ``incidental DPD'' through a
rulemaking proceeding? How should it be defined? Could such a
definition be one of general application, or can incidental DPDs be
defined only in a manner that is specific to the service offered (such
as On-Demand Streams)? If the latter, how can this be accomplished?
As discussed above, there is considerable interest in the streaming
of recorded music. Streaming necessarily involves a making of a number
of copies of the musical work--or portions of the work--along the
transmission path to accomplish the delivery of the work. RIAA and
MP3.com relate that copies are made by the computer servers that
deliver the musical work (variously referred to as ``server,''
``root,'' ``encoded,'' or ``cache'' copies), and additional copies are
made by the receiving computer to better facilitate the actual
performance of the work (often referred to as ``buffer'' copies). Some
of these copies are temporary; some may not necessarily be so. Are some
or all the copies of a musical work made that are necessary to stream
that work incidental DPDs? If temporary copies can be categorized as
incidental DPDs, what is the definition of ``temporary''? Some
``temporary'' copies may exist for a very short period of time; others
may exist for weeks. Is the concept of a ``transient'' copy more
[[Page 14102]]
relevant than the concept of a ``temporary'' copy? If fragmented copies
of a musical work are made, can each fragment, or the aggregation of
the fragments of a single work, be considered an incidental DPD? If a
fragmented copy can be an incidental DPD, does it make a difference in
the analysis whether the copy is temporary or is permanent? Aren't
incidental DPDs subject to section 115's definition of digital
phonorecord deliveries? If so, does the requirement that a DPD result
in a ``specifically identifiable reproduction'' by or for a
transmission recipient rule out some of the copies discussed above from
consideration as incidental or general DPDs?
DiMA argues that all temporary copies of a musical work that are
made to stream that work can be deemed to be covered by the fair use
doctrine of section 107 of the Copyright Act. This would mean, of
course, that these copies would not be subject to any royalty fee
because there is no copyright liability. What is the statutory support
for this argument? Should the Copyright Office, in a rulemaking
proceeding, declare whether any particular use of a copyrighted work
constitutes a fair use, or should it leave that determination to a
court of competent jurisdiction?
It is apparent from the filings received by the Copyright Office
that currently there are different types or services for the streaming
of music. RIAA refers to On-Demand Streams, whereby subscribers can
receive real-time transmissions, using technology such as Real Audio,
of the musical works that they request. MP3.com transmits streamed
performances of musical works to subscribers who select the works from
a ``locker'' containing recorded music that the subscriber has already
purchased. MP3.com suggests that a distinction should be drawn between
its service and those that indiscriminately transmit streamed music to
the public because users of MP3.com have already compensated copyright
holders of the music they stream for the reproduction and distribution
of the phonorecord. Can and should such distinctions be made between
these two streaming services and, if so, what should they be? Are there
difficulties in determining whether the subscriber actually has
purchased a phonorecord containing the music that is being streamed,
and if there are, what impact should that have on how the Office
addresses the issue? Are there additional types of streaming services
that should be addressed?
MP3.com also calls into question the status of the current royalty
structure for incidental DPDs. As discussed above, the rate adjustment
proceeding for DPDs in 1998 resulted in a settlement as to the royalty
rates for general DPDs, and an agreement to a royalty determination for
incidental DPDs. See 64 FR 6221 (February 9, 1999) (adopting 37 CFR
255.6, which provides that royalty rates for incidental DPDs are
``deferred until the next digital phonorecord delivery rate adjustment
proceeding pursuant to the schedule set forth in Sec. 255.7''). If it
is determined in a rulemaking proceeding that streaming does result in
the creation of incidental DPDs, is there liability for parties that
have been engaging in such streaming activities? In other words, when a
CARP is ultimately convened to establish royalty rates for incidental
DPDs, can the CARP set rates for the 1998-2000 period, in addition to
the current period? What is the meaning of a ``deferral'' of royalty
rates, and is such action statutorily permissible? If the CARP did set
rates for incidental DPDs for 1998-2000, would such action constitute
impermissible retroactive rulemaking if the Librarian adopted those
rates? How would a service account for such incidental DPDs that have
already occurred?
In addition to streaming, RIAA seeks clarification of the status of
Limited Downloads. It defines a Limited Download as an on-demand
transmission of a time-limited or other use-limited download to a
storage device (such as a computer's hard drive), using technology that
causes the downloaded file to be available for listening only either
during a limited time or for a certain number of times. Are the copies
made of musical works for Limited Downloads incidental DPDs? Do the
time period or the number of times the music is available have any
bearing on this determination?
RIAA suggests that if Limited Downloads are not incidental DPDs,
then they may be record rentals, leases or lendings under section
115(c)(4). Are Limited Downloads phonorecords distributed by rentals,
leases or lendings, and what is the statutory support for such a
determination? If Limited Downloads are record rentals, leases or
lendings, RIAA requests that the Copyright Office adopt regulations
under section 115(c)(4) for assessing the royalty fee for such uses.
What should those regulations include? Should they be adopted as part
of this rulemaking proceeding, or a separate proceeding? How should the
statutory requirement to set a royalty rate at a ``proportion of the
revenue received by the compulsory licensee'' be interpreted? \3\
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\3\ If a Limited Download is an activity in the nature of
rental, lease or lending, it may be that nonprofit libraries and
educational institutions that engage in Limited Downloads for
nonprofit purposes may do so without liability. See 17 U.S.C.
109(b)(1)(A). Persons submitting comments on whether Limited
Downloads are in the nature of rentals, leases or lending pursuant
to section 115(c)(4) are invited to address the implications of that
issue with respect to libraries and educational institutions.
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3. Petitions for Ratemaking
In addition to the RIAA's petition for rulemaking, the Copyright
Office has before it several requests to convene a CARP to set rates
either for general DPDs or incidental DPDs, or both. As noted above,
the year 2000 was a window year for petitioning for an adjustment of
the royalty rates for DPDs. There is a difference of opinion, however,
as to how and when a CARP should be convened.
The NMPA/SGA petition requests the Librarian to convene a general
rate adjustment proceeding for DPDs, asking that the CARP establish
rates for both general DPDs and incidental DPDs. NMPA/SGA's request is
not conditioned upon the conduct or outcome of a rulemaking proceeding
regarding incidental DPDs.
RIAA requests the Library to convene a CARP if and only if the
Copyright Office makes a determination that copies of musical works
made in the course of On-Demand Streams and/or Limited Downloads are
incidental DPDs. RIAA does not seek adjustment of the rates for general
DPDs. MP3.com makes a similar request.
DiMA does not petition the Library to convene a CARP, but does
suggest a course of action. First, DiMA recommends that the Copyright
Office consider the status of temporary copies of musical works made in
the course of streaming those works in the context of the study it is
conducting under section 104 of the DMCA. If that study concludes that
such copies are not fair use, then DiMA recommends that the Office
conduct a rulemaking proceeding to determine if the copies are
incidental DPDs. If the Office determines that they are not incidental
DPDs, then DiMA supports the NMPA/SGA petition to conduct a rate
adjustment for DPDs and for Limited Downloads. DiMA submits that the
Library should not convene a CARP for incidental DPDs ``unless the
petitioners first demonstrate that there currently exists some class of
known or cognizable incidental digital phonorecord deliveries.'' DiMA
comments at 3.
The Copyright Office, on behalf of itself and the Library of
Congress, seeks comments on these proposals for handling a rate
adjustment proceeding
[[Page 14103]]
in the context of a rulemaking proceeding on the status of DPDs.
Conclusion
The advent of new means of digitally delivering record music to
consumers presents new challenges and questions to the interpretation
and application of the section 115 license. Some of these new means, as
described by the parties seeking action from the Copyright Office, are
discussed above. There may be others, existing or contemplated. We also
invite comment on whether there are other technologies and services
whose existence might affect our interpretation and application of
section 115.
Dated: March 6, 2001.
David O. Carson,
General Counsel.
[FR Doc. 01-5832 Filed 3-8-01; 8:45 am]
BILLING CODE 1410-31-P