Copyright Issues in Online Music Delivery

Report for Congress
Copyright Issues in
Online Music Delivery
Updated June 4, 2002
Robin Jeweler
Legislative Attorney
American Law Division

Congressional Research Service ˜ The Library of Congress

Copyright Issues in Online Music Delivery
Early in the 107th Congress, both the House and Senate Judiciary Committees
held hearings on online music. The Committees’ goals were to obtain information
about the interaction of technology and business surrounding the development of
online music services.
The multiplicity of licensing requirements led several online services to call for
simplified music licensing on the Internet through “compulsory licensing.” When
the law creates a compulsory license, parties thereto need not negotiate its availability
or terms. When statutory requirements are satisfied, the license is available at
statutory rates.
Although there are several types of “compulsory” or “statutory” licenses created
by the U.S. copyright laws, 17 U.S.C. § 101 et seq., there are not, at this time, any
legislative proposals to create a general compulsory license for transmission of music
over the Internet.
Two relatively recent laws, however, the Digital Performance Right in Sound
Recordings Act (DPRA), which was amended by the Digital Millennium Copyright
Act (DMCA), presently control several aspects of compulsory licensing necessary for
digital music transmission. 17 U.S.C. § 114 establishes statutory licenses for the
public performance of qualified digital audio transmissions. 17 U.S.C. § 112
establishes a statutory license for ephemeral copies of digital transmissions. 17
U.S.C. § 115 creates a compulsory license, referred to as a “mechanical” license, for
reproductions of songs and digital phonorecord deliveries over the Internet.
Implementation of these provisions is difficult, and often contentious, given their
complexity and the challenge of applying them to new and evolving technologies and
This report gives a brief overview of the basic elements of music licensing and
surveys recent developments in the U.S. Copyright Office’s implementation of the
DMCA. It notes the Copyright Office’s DMCA § 104 Report and its interpretation
of compulsory licensing provisions under 17 U.S.C. §§ 114, 112, and 115. It reviews
preliminary and final rulemaking decisions concerning webcasting, including
statutory royalty rates, notice and record keeping requirements, interactive services,
and digital phonorecord deliveries. Finally, it surveys legislation focusing on onlineth
music introduced in the 107 Congress.

In troduction ..............................................1
Background: The Complexities of Music Licensing..............3
Statutory licenses for public performance of digital audio transmissions
under 17 U.S.C. §§ 114, 112. and 115......................5
Compulsory or “mechanical” licenses for reproduction and distribution
rights under 17 U.S.C. § 115.............................7
Recent and ongoing interpretations by the U.S. Copyright Office....9
Legislation introduced in the 107th Congress....................14
Conclusion ..............................................15

Copyright Issues in Online Music Delivery
Introduction. At the height of its popularity, Napster captured the public’s
fancy. For many, especially young people and college students, Napster became
synonymous with online music. It popularized music delivery over the Internet; it
demonstrated the ease and convenience with which consumers could select songs
from vast music repertories; and, it made what had been the unrealized notion of
completely customized, personal music CDs a reality. In copyright infringement
litigation of widespread interest, the federal courts ruled that Napster violated the
copyright interests of the music industry and performing artists whose songs were1
being freely exchanged.
But the wide-spread popularity of Napster made its mark. As a result, the
avowed goal of those within and without the music industry is to see the development2
of convenient, meaningful, and lawful access to services on the Internet.
Early in the 107th Congress, both the House and the Senate held hearings on the
legal and technical obstacles to streamlined and expanded online music delivery. On
April 3, 2001, the Senate Judiciary Committee held a hearing entitled “Online
Entertainment: Coming Soon to a Digital Device Near You.”3 The Committee took
testimony from representatives of the music industry and online music services. The
Committee’s aim was to elicit information about the interaction of technology and
business surrounding the development of online music delivery, not to formulate new
legislation to regulate it.
Among those who testified were Hank Berry, Interim CEO of Napster, and
Robin Richards, President of Both companies were sued successfully by
the music industry for copyright infringement. Attempting to comply with the court’s
orders, Mr. Berry addressed the difficulty of obtaining information on copyright
ownership rights and the general complexities of music licensing.
Robin Richards of discussed the difficulties obtaining copyright
clearance faced by his company’s music storage “locker” service,

1A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001). Press accounts indicate
that Napster was recently acquired by Bertelsmann AG and is likely to file for
reorganization under chapter 11 of the U.S. Bankruptcy Code. See, Nick Wingfield, Napster
Gets a Reprieve – Bertelsmann Deal Won’t Solve All of Music Site’s Woes, WALL STREET
JOURNAL EUROPE, May 21, 2002 available at PROQUEST, Newspaper Library.
2Copyright Conference Panelists Say Digital Rights Management, Education, Access Key
to Content Protection, 61 BNA PATENT, TRADEMARK & COPYRIGHT J. 625 (Apr. 27, 2001).
3The House Subcommittee on Courts, the Internet and Intellectual Property held an oversight
hearing entitled “Music on the Internet” on May 17, 2001. is designed to allow consumers to use Internet-connected devices to
listen to CDs that they have previously purchased. With respect to Internet music
transmissions, Mr. Richards referred to several different copyright authorizations
[A]lthough we disagreed with the interpretation of the copyright law put
forward by the record labels and publishers, our desire to get our service
back up and running led us to enter into very costly agreements covering
all of their claims. We have agreed to pay for converting the CDs that we
purchase into MP3 format. We have agreed to pay for performing both the
sound recordings and the songs contained on those CDs. And we have
even agreed to pay the publishers for the temporary, momentary “buffer”
copy that automatically is made (and deleted) each time someone listens
to their own music out of their locker. Yet, today, nearly six
months after signing the last of these agreements, we haven’t been able to
obtain all of the licenses that the copyright owners insist we must have
before we can fully relaunch the service.4
The multiplicity of licensing requirements for online music led several business
consumers and online music services to call for simplified music licensing on the
Internet through “compulsory licensing.” The recording industry expressed their
concerns over the necessity of a secure means to transmit music electronically; and
members of the general public (and the Congress) expressed their impatience with
the pace of development for online music delivery.
When the law creates a compulsory license, parties thereto need not negotiate
its availability or terms. When statutory requirements are satisfied, a compulsory
license is available at statutory rates. Many copyright owners, and the U.S.
Copyright Office, however, are generally against expanding compulsory licensing,
particularly with respect to valuing rights in a cyberspace.5 They contend that
determining the commercial market value of the property is best established through
contract negotiation, not regulatory rate-making.
Although there are several types of “compulsory” or “statutory” licenses created
by U.S. copyright law, 17 U.S.C. § 101 et seq., there are not, at this time, any
legislative proposals to create a general compulsory license for transmission of music
over the Internet.
Two laws, the Digital Performance Right in Sound Recordings Act (DPRA),6
which was amended by the Digital Millennium Copyright Act (DMCA),7 control
several aspects of compulsory licensing necessary for digital music transmission. 17

4Statement of Robin Richards before the Senate Judiciary Committee at
[ www.senat e .gov/ ~ j udi ci ar y/ t e 04030/ r r .ht m] .
5Leave Webcasting to the Marketplace Government, Industry Witnesses Tell Panel, 60 BNA
PATENT, TRADEMARK & COPYRIGHT J. 164 (June 23, 2000).
6P.L. 104-39 (Nov. 1, 1995).
7P.L. 105-304 (Oct. 28, 1998).

U.S.C. § 114 establishes statutory licenses for the public performance of digital audio
transmissions by qualified licensees. 17 U.S.C. § 112 establishes a license for the
“ephemeral” or temporary copies necessary to effect a digital audio transmission. 17
U.S.C. § 115 creates a compulsory license, referred to as a “mechanical” license, for
reproductions of songs and digital phonorecord deliveries over the Internet.
Implementation of these provisions is proving difficult given their complexity and
the challenge of applying them to new and evolving technologies and businesses.
Indeed testimony before the Senate Judiciary Committee evidenced a lack of
consensus over many of the basic components of copyright rights relative to online
music transmission. For example, parties disagree over the “new” statutory language
of digital audio transmission and how traditional, protected activities such as
“reproduction” and “public performance”should apply in an Internet environment.
This report gives a brief overview of the basic elements of music licensing and
surveys recent developments in the U.S. Copyright Office’s interpretation of
compulsory licensing provisions under 17 U.S.C. §§ 112, 114 and 115.
Background: The Complexities of Music Licensing. While almost all
people acknowledge an intellectual property ownership interest in those who
contribute their creative talents to the world of music, few outside the music industry
appreciate the legal complexity of copyright ownership interests and responsibilities.
The Copyright Act confers discrete exclusive rights on different types of expressive
The owner of a musical composition (which is the underlying song on a sound
recording) has the exclusive right to do or to authorize:
!reproduction of the copyrighted work;
!preparation of derivative works based on the copyrighted work;
!distribution of copies to the public by sale, rental, lease or lending;
!performance of the work publicly; and,
!display of the work publicly.8
The owners of rights in sound recordings have an exclusive right to control
reproduction and distribution of their recordings, but they do not have the same
public performance right as composers. In the case of sound recordings, the public
performance right is qualified and limited. It covers
! performance of the work publicly by means of a digital audio transmission.9

817 U.S.C. § 106(1)-(5).
917 U.S.C. § 106(6).

Cole Porter, Frank Sinatra, and “I’ve Got You Under My Skin”.
Different exclusive rights attach to different uses and expressions of copyrighted
work. The convergence of copyright interests in a sound recording is a prime
illustration. An oft-cited example is that of Cole Porter’s composition, the song I’ve10
Got You Under My Skin. The copyright to a song is most often owned by the
composer or a music publisher, in this case, Warner/Chappell Music, Inc.11 In order
to record a version of I’ve Got You Under My Skin, permission must be obtained
from Warner/Chappell. Many performers have recorded different versions of it.
The copyright in a sound recording is most often owned by the recording artist
or the recording studio. Frank Sinatra recorded a version, the copyright to which is
owned by Reprise Records. Now assume that one wished to use the Frank Sinatra
recording. How is it to be used? One way might be a radio station’s over-the-air
(analogue) broadcast of it. Since a broadcast is essentially a “public performance,”
the station would obtain permission, i.e., pay a royalty to Warner/Chappell. But,
because sound recording copyright holders do not have control over “public
performances” of the recording, the radio station need not pay royalties to Reprise
Records. Assume, however, that the radio station wishes to reproduce and distribute
copies of Frank Sinatra’s recording of I’ve Got You Under My Skin for promotional
purposes. The composer/music publisher has the right to control the reproduction
and distribution of the underlying composition (the song). And the sound recording
copyright holder has the right to control reproduction and distribution of the sound
recording. Hence, permission would be needed from both rights holders. Obtaining
permission to use a song is a separate undertaking from permission to use a sound12
In addition to what can be a complicated matter of identifying rights holders,
one seeking permission to use copyrighted music may negotiate a wide variety of
different types of licensing agreements. Again, the license will reflect which of the
rights holder’s exclusive rights are implicated depending upon the nature of the13
intended use. In most instances, the negotiation of permission – that is, the
licensing agreement – is a private, contractual matter between the parties. By
contrast, when the law creates a compulsory or statutory license, no negotiation is

10AL KOHN & BOB KOHN, KOHN ON MUSIC LICENSING 11 (3rd ed. 2002). See also, Kohn,
A Primer on the Law of Webcasting and Digital Musical Delivery, 20 ENT. L. REPTR. 7
11Many writers and music publishers are represented by “performance rights societies” such
as the American Society of Composers, Authors and Publishers (ASCAP), the Broadcast
Music, Inc. (BMI), or the Society of European State Authors and Composers (SESAC).
[music or sound recordings] may be used as applicable, by compulsory license, by direct
license, by statutory exemption, by virtue of the fair use doctrine, or because of its public
domain status, in any permutation or combination. The point is that each exercise must be
undertaken independently.”
13The variety of music licenses is extensive, including, for example, print licenses,
mechanical licenses, electrical transcription licenses, synchronization licenses, videogram
licenses, musical product licenses, performance licenses, dramatic performance licenses, and
grand performance licenses. KOHN ON MUSIC LICENSING, supra at 444-448.

necessary. The user, i.e., the licensee, simply complies with the statutory conditions
to use the work and pays the statutory rate or royalty for the benefit of the rights
With respect to online music delivery, however, the relative newness of both the
technology and the law itself suggests the absence of an interpretative consensus
among affected parties, including the courts, about the precise copyright law
principles that will govern online music transmission.
Statutory licenses for public performance of digital audio
transmissions under 17 U.S.C. §§ 114, 112. and 115.
Statutory Licensing for Performance Rights for Digital Audio
Transmissions, 17 U.S.C. § 114. When Congress adopted the DPRA in 1995,
it created a new but limited public performance right for digital audio transmissions.
Rather than add a broad, comprehensive new performance right similar to that
enjoyed by composers, Congress created many exemptions to the performance right
of sound recording owners.
Among the exemptions to a sound recording owner’s exclusive right under

106(6), pursuant to § 114(d)(1) are:

!a nonsubscription broadcast transmission, i.e., traditional over-the-air radio
and television broadcasts and qualified retransmission; and
!internal transmissions by a business on or around its premises, including “on-14
hold music” transmissions via telephone to a caller waiting for a response.
These services are exempt from the performance right and do not need to obtain a
license to pay royalties for digital transmissions.
Congress also provided for statutory licensing for some, but not all, digital15
transmissions. The nature of the digital public performance right requires the
licensing parties to distinguish between “subscription” and “interactive” digital
transmissions. Subscription services involve controlled transmissions that are limited
to paid recipients, while an interactive service enables a member of the public to16
request a particular sound recording.
The legislative history of the DPRA expresses congressional concern that
interactive services had the greatest potential to impact traditional record sales.

1417 U.S.C. § 114(d)(1)(C)(iv). S.Rept. 104-128, 104th Congress, 1st Sess. 23 (1995).
See, 2 NIMMER ON COPYRIGHT § 8.22[B][3].
1517 U.S.C. § 114(d)(2), (f).
1617 U.S.C. § 114(j)(7) & (14). Although subscription and interactive services may be
related, some guidelines for determining what a service is are established by the statute. The
ability of an individual to request that a particular sound recording be performed for the
public at large, for example, or for members of a subscription service, does not render it an
interactive one if the song is not performed within one hour of the request.

Therefore, copyright owners have the exclusive right to control the performance of
their work on interactive media through negotiated contracts.17 Thus, subscription
transmissions may qualify for compulsory licensing, but interactive subscription
services must be “voluntarily licensed.”18
Statutory license for webcasting: eligible nonsubscription and
subscription transmissions. Webcasters whose activities are not exempt under
§ 114(d), and are likewise nonsubscription and noninteractive, may qualify for a
statutory, i.e., a compulsory, license. They are referred to as “eligible
nonsubscription transmissions.”19
Unless a subscription service is exempt from the public performance right, it
too may qualify for a statutory license if detailed requirements are complied with.
Among the requirements for a subscription service’s statutory license is adherence
to the “sound recording performance complement.”20 The sound recording
performance complement is a complex protocol, adapted from traditional radio
broadcast practice, which limits the number of selections a subscription service can
play from any one phonorecord by the same featured artist. The goal of the protocol
is to prevent a pre-announced play schedule that facilitates copying of albums, or the
work of individual performers, in their entirety.
Limitation on exclusive licenses for interactive services. Although
the DPRA requires negotiated licensing for interactive services, it does limit the
duration of an exclusive license for the performance of a sound recording to prevent
copyright owners of the recordings from becoming monopolistic “gatekeepers” and
limiting opportunities for public performances.21
Statutory Licensing for Ephemeral Recordings of Digital Audio
Transmissions, 17 U.S.C. § 112. Ephemeral recordings are reproductions of a
work produced solely for the purpose of its transmission by an entity legally entitled
to publicly perform the work. Section 114 is concerned with the public performance
right for digitally transmitted sound recordings. Section 112 authorizes a compulsory
license to enable those who webcast a sound recording to make a temporary or

17S.Rept. 104-128 at 16.
182 NIMMER ON COPYRIGHT § 8.22[A][1].
1917 U.S.C. § 114(j)(6) defines an “eligible nonsubscription transmission” as:
a noninteractive nonsubscription digital audio transmission not exempt under
subsection (d)(1) that is made as part of a service that provides audio
programming consisting, in whole or in part, of performances of sound
recordings, including retransmissions of broadcast transmissions, if the primary
purpose of the service is to provide to the public such audio or other
entertainment programming, and the primary purpose of the service is not to sell,
advertise, or promote particular products or services other than sound recordings,
live concerts, or other music-related events.
2017 U.S.C. § 114(d)(2)(B)(i).
2117 U.S.C. § 114(d)(3).

“ephemeral” reproduction or copy of the recording, which is generally stored in the
hard drive of computers, i.e., servers, in order to facilitate the performance. Thus, a
statutory license under § 114 applies to a public performance while the statutory
license under § 112(e) applies to a reproduction. The latter covers only those
ephemeral recordings of phonorecords used for transmissions in connection with a
statutory license under § 114(d) or (f).22
Compulsory or “mechanical” licenses for reproduction and
distribution rights under 17 U.S.C. § 115. The mechanical license in copyright
law was enacted in 1909 in response to a U.S. Supreme Court decision which held
that “mechanical” devices such as piano rolls were not copies of musical
compositions. Hence, to reproduce a song on a piano roll or on a phonograph record23
would not result in an infringement of the composer’s copyright. Acting to overturn
the Court’s decision, to reverse its impact on owners of copyright interests in
musical compositions, and to thwart a potential music monopoly by a large
manufacturer of piano rolls, Congress created the compulsory license provision that
is currently embodied in 17 U.S.C. § 115. The license protects the composer’s right
to control reproductions of the work but permits the recording of a song by a third-
party on “mechanical” media like a piano roll or record, hence the term “mechanical
license.”24 In its present form, it essentially allows reproduction of music that may25
be heard with the aid of a mechanical device. The mechanical license is validly
obtained only after a song has been initially distributed publicly under the authority
of the copyright owner. The license is authorized when the licensee’s primary
purpose is to distribute the work publicly for private use.
The §115 mechanical license compensates the rights holder in the musical
composition for reproduction and distribution rights; it does not authorize the
duplication of a sound recording.26 Permission to duplicate a sound recording must
be obtained from whomever owns the copyright, the recording artist or record studio.
Digital Phonorecord Deliveries. In 1995, the DPRA amended §115 to include
“digital phonorecord deliveries” or DPDs.27 DPDs were included in the mechanical

22“In any particular case, acts implicating the reproduction or performances rights must be
considered separately under sections 112[e] or 114, as applicable, and any other relevantth
provisions under the Copyright Act.” H. Comm. on the Judiciary, 105 Cong., SECTION-BY-
REPRESENTATIVES ON AUG. 4, 1998, 52 (Comm. Print 1998).
23White-Smith Music Pub. Co. v. Apollo Co. 209 U.S. 1 (1908).
25KOHN ON MUSIC LICENSING, supra at 677.
2617 U.S.C. § 115(a)(1), “A person may not obtain a compulsory license for the use of the
work in the making of phonorecords duplicating a sound recording fixed by another, unless
(i) such sound recording was fixed lawfully; and (ii) the making of the phonorecords was
authorized by the owner of copyright in the sound recording... .”
27A DPD 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

license to compensate composers for an anticipated offset in revenues from record
sales as songs become more frequently transmitted digitally:
Among other things, [§ 115] is intended to confirm and clarify the right of
musical work and sound recording copyright owners to be protected against
infringement when phonorecords embodying their works are delivered to
consumers by means of transmissions rather than by means of phonorecord retail
sales. The intention in extending the mechanical compulsory license to digital
phonorecord deliveries is to maintain and reaffirm the mechanical rights of
songwriters and music publishers as new technologies permit phonorecords to
be delivered by wire or over the airwaves rather than by the traditional making
and distribution of records, cassettes and CD's. The intention is not to substitute
for or duplicate performance rights in musical works, but rather to maintain
mechanical royalty income and performance rights income for writers and music
Hence, a mechanical license is available: to compensate the rights holder in the
musical work when the licensee makes or distributes a phonorecord of a new
version of the work; to compensate the musical composition rights holder when the
licensee has obtained permission from a sound recording holder to duplicate the
sound recording; and, to compensate the rights holder in the musical work for a DPD
transmission of the work.
To summarize, there are many copyright requirements for both permission and
licensing which must be observed before music can legally be transmitted over the
Internet. These include:
!permission from the rights holder in the musical composition to duplicate,
distribute, and/or perform the song publicly;
!permission from the rights holder in the sound recording to duplicate and
distribute it and/or to perform it publicly via a digital audio transmission.
In most cases and contexts, parties will negotiate licensing agreements.
However, statutory and compulsory licenses are available in limited circumstances:
!a third party may obtain a compulsory license to compensate composers/
music publishers when the licensee mechanically reproduces a song or
transmits it digitally as a DPD;
!with respect to the public performance of a digitally transmitted sound
recording, some transmissions are subject to a digital performance right, some
are exempt, and yet others are entitled to the statutory license to compensate
the sound recording rights holder.

transmission recipient of a phonorecord of that sound recording, regardless of whether the
digital transmission is also a public performance of the sound recording... .” 17 U.S.C. §


28S.Rept. 104-128 at 37.

Recent and ongoing interpretations by the U.S. Copyright Office.
Recent actions and determinations by the U.S. Copyright Office illustrate the
complexity of many of the legal issues affecting online music delivery, particularly
with respect to the implementation of requirements under the DMCA.
The DMCA § 104 Report: Recommendations regarding “incidental”
copies and performances. Pursuant to § 104 of the DMCA, Congress directed
the Copyright Office and the Department of Commerce to evaluate the effects of the
DMCA on the development of electronic commerce and the relationship between
existing and emergent technologies in connection with two provisions of the
Copyright Act, §§ 109 and 117. Section 109 of the Act addresses the “first sale”
doctrine, which, in essence, allows the purchaser of a traditional, i.e., nondigital
book, copy, or phonorecord, to dispose of it without being in violation of the
copyright owner’s distribution right. Section 117 of the Act sets forth exceptions to
the owner’s right of reproduction with respect to specific uses of a computer
In August of 2001, the Copyright Office issued the “DMCA Section 104
Report.”29 Although the Report’s general conclusions are beyond the scope of this
report, one of its recommendations relates directly to webcasting. The Report
considers the unsettled copyright status of “incidental” or buffer copies necessitated
by digital streaming. Also discussed are digital performances that are incidental to
digital music downloads. Technically, discrete reproduction(s) or public
performance(s) takes place in connection with streaming or a music download. The
question is whether these activities should be authorized within a single grant of
permission to the licensee to stream or download, or should each incidental
transaction be separately licensed and compensable?
The Report analyzes the issue and recommends “that Congress enact legislation
amending the Copyright Act to preclude any liability with respect to temporary buffer
copies that are incidental to a licensed digital transmission of a public performance30
of a sound recording and any underlying musical work.” Likewise, it concludes that
“no liability should result under U.S. law from a technical ‘performance’ that takes31
place in the course of a [music] download.”
The Copyright Office acknowledges the close, analogous relationship between
temporary buffer copies and ephemeral copies addressed in 17 U.S.C. § 112:
As with temporary buffer copies, ephemeral recordings are made for the sole
purpose of carrying out a transmission. If they are used strictly in accordance

2001). The Report in its entirety is available on the Copyright Office’s website at
[ h t t p : / / www.c opyr i gh t . go v/ r e por t s / s t udi e s / d mc a / dmc a _s t ml ] .
30Id. at 142-143.
31Id. at 148.

with the restrictions set forth in section 112, they have no economic value32
independent of the public performance that they enable.
Hence, the Office favors repeal of § 112(e) and “the adoption of an appropriately-
crafted ephemeral recording exemption.”33
Webcasting: Are radio broadcasters exempt from the digital
performance right when they simultaneously stream over the Internet?
As discussed earlier, the DPRA’s public performance right for digital transmissions34
of sound recordings exempts “nonsubscription broadcast transmissions.” Radio
broadcasters assert that this exemption covers FCC-licensed broadcasters who stream
their radio programming over the Internet.
The question, which arose in the course of rate adjustment proceedings for the
§ 114 statutory license, is whether FCC-licensed broadcasters’ simultaneous
retransmission of radio broadcasts via the Internet are exempt from the limited sound
recording performance right.
On December 11, 2000 the Copyright Office issued a final rule holding that,
with the exception of over-the-air digital radio broadcasts, all other digital
transmissions, including streaming over the Internet or “webcasting,” are subject to35
statutory licensing under § 114(d)(2). Broadcasters have challenged the rule,
unsuccessfully to date.36
DMCA-based rulemaking relating to webcasting.
Rulemaking to establish statutory royalty rates for public performance
and ephemeral copies of digital sound recordings. The compulsory license
provisions of 17 U.S.C. §§ 114 and 112 necessitate establishing statutory rates.
Rates are generally set for two year periods. They are established by the Librarian of
Congress in consultation with the Copyright Office. The Copyright Office
consolidated the proceedings for the first two terms for post-DMCA webcasting
rates, 1998-2001.
The ratemaking scheme is intended to create consensus and/or support an
informed market-based rate: First, affected parties (potential licensors and licensees)37
are subject to a six-month period to engage in voluntary negotiations. In the
absence of consensus and if requested by a party, owners and users may submit to

32Id. at 144. (Footnotes omitted.)
33Id., fn. 434.
3417 U.S.C. § 114(d)(1)(A).
35Public Performance of Sound Recordings: Definition of a Service, 65 Fed. Reg. 77292
(December 11, 2000)(to be codified at 37 C.F.R. § 201.35). The notice is also available on
the Copyright Office’s web site,
36Bonneville International Corp. v. Peters, 153 F. Supp.2d 763 (E.D.Pa. 2001).
3717 U.S.C. §§ 112(e), 114(f).

and be bound by compulsory arbitration conducted pursuant to the Copyright Act.38
Arbitration is an adversarial proceeding held before a three-person panel, the
Copyright Arbitration Royalty Panel (CARP). If, prior to the commencement of the
CARP proceedings, the parties are able to agree to an industry-wide settlement, the
Librarian may adopt the proposed rate in the absence of an objection by an affected
party. 39
Although the Copyright Office has announced the initiation of a voluntary
negotiation period for statutory royalty rates for webcasters for a future two-year
cycle, 2003-2004,40 rates have not yet been finalized for the previous terms, 1998-
2002. Those rates were subject to a contentious arbitration before the CARP. The
Report of the Copyright Arbitration Royalty Panel entitled “In re rate setting for
Digital Performance Right in Sound Recordings and Ephemeral Recordings” was
issued on February 20, 2002.41 On May 21, 2002, the Librarian, upon the
recommendation of the Copyright Office, issued an order rejecting the CARP’s
proposed rates.42 The Librarian will implement rates by June 20, 2002. Aggrieved
parties bound by the rates may then bring suit in the U.S. Court of Appeals for the
D.C. Circuit.43
Rulemaking to establish notice and record keeping requirements for
public performance of digital sound recordings. The compulsory licenses
created by 17 U.S.C. § § 114 and 112 also require that licensees give copyright
owners notice and maintain records of use.44 These requirements facilitate delivery
of royalty payments to copyright owners. In February, 2002, the Copyright Office
initiated a rulemaking to establish new requirements for notice and record keeping45
that will impact webcasters. Statutory licensee webcasters would be required to
keep and report detailed information on the sound recordings performed through
“Intended Playlists.” The RIAA has proposed the collection of additional
information in a “Listener’s Log” and “Ephemeral Phonorecord Log.” Comments
and feedback from webcasters indicate the absence of consensus over the appropriate

3817 U.S.C. §§ 801-803.
3937 C.F.R. § 251.63 (2001).
40Digital Performance Right in Sound Recordings and Ephemeral Recordings, 67 Fed. Reg.

4472 (January 30, 2002),available on the Copyright Office’s web site, [].

41The report, in its entirety, is posted online at the U.S. Copyright Office’s website at
[ ht t p: / / www.l copyr i ght / car p/ webcast i ng_r a t e s.pdf ] .
42In the Matter of Digital Performance Right in Sound Recordings and Ephemeral
Recordings, Docket No. 2000-9 CARP DTRA 1&2, available online at the U.S. Copyright
Office website, [].
43For more information on the CARP’s recommendations, see, CRS Report RS21200,
Copyright Law: Statutory Royalty Rates for Webcasters, by Robin Jeweler (May 21, 2002).
44See, 37 C.F.R. §§ 201.35-.36 (2001).
45Notice and Recordkeeping for Use of Sound Recordings under Statutory License, 67 Fed.
Reg. (February 7, 2002), available on the Copyright Office’s web site, [].

level of detail and manner of record keeping. Many webcasters claim that the
proposed record keeping requirements are too burdensome and impracticable.46
Rulemaking to determine whether a service is interactive. On the same
day as the Copyright Office issued its rule finding broadcasters nonexempt from the
public performance right when webcasting, it denied a petition filed by the Digital
Media Association (DiMA) to initiate a rulemaking to determine when an online
music delivery service is “interactive.”47 Interactive services must conduct arms-
length negotiations with a sound recording copyright owner for a license before
making a digital transmission that constitutes a public performance. Non-interactive
services may qualify for a statutory license under § 114(d). Although the term
“interactive service” is statutorily defined,48 the Copyright Office noted that neither
the statutory definition nor the legislative history “draws a bright line delineating just
how much input a member of the public may have upon the basic programming of
a service.”49 DiMA sought a rulemaking to attempt to clarify that some expression
of consumer preference in audio digital transmissions will not necessarily render a
service “interactive” and thus ineligible for a statutory license. The Copyright Office
found that a rulemaking is not necessary or appropriate because “[i]n light of the
rapidly changing business models emerging in today’s digital marketplace, no rule
can accurately draw the line demarcating the limits between an interactive service
and a noninteractive service.”50
Application of 17 U.S.C. § 115 to certain digital music services:
Rulemaking to consider what constitutes an “incidental” DPD . On March 9,
2001, the Copyright Office issued a “Notice of Inquiry” requesting public comment
on whether it should conduct a rulemaking on the question of what constitutes an
“incidental” DPD in order to determine royalties for a mechanical license.51 When
Congress amended § 115 to include DPDs, it made a statutory reference to – but did
not define – “incidental” DPDs. Specifically, when a Copyright Arbitration Royalty
Panel (CARP) is convened to establish a statutory royalty rate for the mechanical
license, it is directed to “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 phonorecord52
deliveries in general.”
To date, establishing rates for incidental DPDs has been deferred. However, a
wide variety of issues for online music delivery are implicated as the Copyright

46Roundtable Reveals Wide Disagreement on Webcasting Compulsory Licensing, 64 BNA
4765 Fed. Reg. 77330 (Dec. 11, 2000). The notice is also available on the Copyright Office’s
web site at [].
4817 U.S.C. § 114(j)(4).
4965 Fed. Reg. at 77331.
50Id. at 77332.
5166 Fed. Reg. 14099 (2001).
5217 U.S.C. § 115(c)(3)(D).

Office considers how best to address the issue. Indeed, the question “what is an
incidental DPD?” arguably transcends mere copyright law and enters the realm of the
metaphysical. As the Copyright Office’s Notice of Inquiry observes:
[T]here 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 [Recording Industry of America] and 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
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 is53
temporary or is permanent? ...
Many parties will be affected by any resolution of the issue. RIAA, for
example, seeks an interpretation of the DPD status of “On-Demand Streams”54 and
“Limited Downloads,”55 asserting that they are incidental DPDs. Napster filed
comments opposing RIAA’s position, arguing that Congress must clarify the status
of incidental DPDs, not the Copyright Office. DiMA argues that all temporary
copies of a musical work that are made to stream constitute a “fair use” which should
not be subject to any royalty. And,, reiterating concerns expressed in
testimony before Congress, argues that a distinction must be made between different
types of streaming. In the context of its “locker”service, which permits subscribers
to access music that they have previously purchased, argues that its users
have already compensated copyright rights holders when they purchased the original
The DPD controversy leads to the broader question of how music royalties
should be distributed over the Internet. Some argue that digital transmission on the
Internet blurs the distinction between public performance and computer-driven

5366 Fed. Reg. at 14101-02.
54An “On-Demand Stream” is defined in the filings of the RIAA 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.” 66 Fed. Reg. at


55A “Limited Download” is defined in the filings of the RIAA 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.”

reproduction. Online firms argue that royalties to compensate composers and
publishers for streamed music should track traditional over-the-air broadcast and
retail sales: Mechanical royalties are triggered when CDs or tapes are sold and
performance royalties apply when music is broadcast or played publicly. Hence, they
assert that when a consumer listens to music on the Internet (without saving it), it
should constitute a performance as opposed to a reproduction; downloading a song
for future use, they contend, is a reproduction.56
Legislation introduced in the 107th Congress. To date, only one bill has
been introduced in the 107th Congress that is concerned solely with online music
licensing issues.
H.R. 2724, 107th Cong., 1st Sess. (2001): The “Music Online
Competition Act”(MOCA). Introduced by Representatives Cannon and Boucher,
MOCA, if enacted, would streamline music licensing procedures by consolidating
different aspects of copyright owners’ performance and reproduction rights through
the licensing processing for digital transmission of sound recordings. It addresses
other aspect of online music. Among other things, it:
!amends the public performance exemption for vendors, 17 U.S.C. § 110(7),
to allow music “sampling” in a retail context to promote sales to include
digital audio transmission by vendors and online services;
!amends the ephemeral licensing requirements in § 112(a) to liberalize the
terms for ephemeral copying;
!exempts statutory public performance licensees from the ephemeral recording
license requirement for digital audio transmissions used pursuant to the
performance license. This provision appears to implement the Copyright
Office’s recommendation under the DMCA § 104 Report;
!amends 17 U.S.C. § 114(g) regarding royalty payment distributions to
performers for digital audio sound recordings;
!amends 17 U.S.C. § 114(h) governing the terms under which a copyright
owner who licenses a digital sound recording to an affiliate must also offer
comparable licenses to the public. It would permit a licensor to require some
level of digital rights management (DRM) technology by licensees, but not
any particular DRM technology or electronic equipment;
!amends notice and royalty setting standards for mechanical licenses under 17
U.S.C. § 115, and creates a new category of digital phonorecord deliveries,
namely, “limited digital phonorecord deliveries;” and

56Jon Healy, Net Music Services in Royal Bind; Web: Online firms say publishers’ demand
for reproduction and performance royalties is holding up business, LOS ANGELES TIMES,
May 21, 2001 at C1.

!amends 17 U.S.C. § 117 to exempt “incidental”copies of a sound recording
in digital format provided that the use of the work is otherwise lawful. This
provision also appears to implement the Copyright Office’s recommendation
under the DMCA § 104 Report. And, the bill creates a new exemption from
a copyright owner’s exclusive rights to permit the recipient of either a
phonorecord or literary work received by digital transmission to make copies
for archival purposes, provided that all archival copies are destroyed in the
event that continued possession of the phonorecord or copy ceases to be
Conclusion. While many have called for legislation to streamline the
licensing of sound recordings on the Internet, others believe it is unnecessary because
widespread demand and the market itself will shape a viable new business
environment for online music.
The foregoing discussion illustrates several areas where Congress and the
Copyright Office continue to attempt to adapt traditional licensing practices to new
laws, technologies, and business models. In some instances, issues may be resolved
administratively or judicially as the new language of online music takes on
discernable and concrete meaning. Or conversely, these licensing questions may be
a starting point for legislative proposals to streamline music licensing on the Internet.

57For a discussion of the Copyright Office’s recommendations with respect to amendments
to 11U.S.C. § 117, see the DMCA § 104 Report, supra at 159-161.