IRFA's royalty reforms not limited to change in rate-determining standard

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Issue Date: 
Oct 9 2012 - 11:55am

From Issue:

Most of the focus of the recently-introduced Internet Radio Fairness Act (in RAIN here) centers on the change of the legal standard by which Net radio royalties are determined. Namely, the bill calls for abandoning the "willing buyer/willing seller" standard in favor of what's known as 801(b) (for its location in the Copyright Act).

But the bill isn't limited to this single point. In a Broadcast Law Blog post, Net radio legal expert David Oxenford (pictured) explains some of the other points included in the bill intended to enhance the viability of a webcasting market in the U.S.

(To review, Internet radio sound recording royalties are based on what Copyright judges think a willing buyer and willing seller would agree to in a marketplace transaction -- a hypothetical one at that. If royalty judges were compelled to base their decisions on the 801(b) standard, as they are for satellite and cable radio royalties, they'd have to consider how their decision (A) Maximizes the availability of creative works to the public; (B) Affords the copyright owner a fair return on his/her creative work and the copyright user a fair income under existing conditions; (C) Reflects the relative roles of the copyright owner and the copyright user with respect to creative and technological contributions, capital investment, cost, risk, and contribution to opening new markets; and (D) Minimizes any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.)

In addition to the very important standards change, first of all, the IRFA calls for rates set by Webcaster Royalty Act settlements expiring in 2014 be extended through 2015. But perhaps more importantly, the bill removes "the precedential effect" of past royalty decisions. Moreover, it "explicitly put(s) the burden of proof on the parties seeking a royalty that the royalty... is reasonable -– a standard that is common in ASCAP and BMI rate court litigation, but is not at all addressed in the current Copyright Act addressing the sound recording performance royalties set by the CRB," Oxenford writes. Additionally, the IRFA changes the law in that it specifically removes "any suggestions that certain aspects of recent royalty decisions were in fact the preferred way of reaching a royalty decision." 

One important (and contentious) point between record labels and webcasters has been the "promotional" aspect of online plays. Remember, broadcasters' exemption from this royalty for over-the-air plays of copyright sound recordings is based on the fact that playing this music helps sell it. The record industry has a long history of reinforcing this very argument by way of promoting music to radio (even as far as committing payola, in some instances). But labels have gone out of their way to claim that online play doesn't at all help their sales (despite evidence to the contrary). The Chaffetz bill requires that a royalty rate decision should give "full-value" to "the promotional value of the playing of music by the service" and "the costs of the digital music service in putting together the programming that it features," Oxenford explains. Oxenford adds that the bill would also change to the law regarding "ephemeral" royalties -- for the use of music that's reproduced as cached files on servers, etc., which he intends to explore in a later piece.

Read Oxenford's report in Broadcast Law Blog here.

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